Chapter 7 bankruptcy is a liquidation proceeding.  If you have any non-exempt assets, they’re sold by the Chapter 7 trustee and the proceeds are distributed to your creditors according to the priorities established in the Bankruptcy Code.  In nearly all consumer cases, all assets are exempt.  There are, therefore, no assets to liquidate and no money to give out to creditors. Chapter 7 is ordinarily the easiest and fastest form of bankruptcy.  It’s available to individuals, married couples, corporations and partnerships.

Before you’ll be able to file Chapter 7 bankruptcy you’ll have to pass means test.  The means test is a calculation that compares your average income for the last six months, annualized, to the average income for families of the same size in your state. If your income is less than or equal to the state average income, you “pass” the means test and may file Chapter 7 bankruptcy.

You Start by Filing a Chapter 7 Bankruptcy Petition

Your Chapter 7 bankruptcy is begun by filing the official petition, schedules and statement of financial affairs. These forms require you to list all of your assets and all of your debts, along with some recent financial history.  This is the most important and most time intensive part of a bankruptcy filing.

It’s important that you name all of your creditors with correct mailing addresses.  You must name all of your debts.  You must even list those debts that are’t dischargeable and those you plan to reaffirm.

You must likewise name all of your property, along with any debts secured by that property, and the sale value of the property.  “Property” as defined by the Bankruptcy Code means “assets” or “possessions.”  It’s not restricted to only real estate.

You must sign the schedules under penalty of perjury.  You then file the schedules with the bankruptcy clerk in the district in which you live. 

After you file your Chapter 7 bankruptcy petition, all the succeeding bankruptcy proceedings concern your situation as it existed on the date of filing.

The automatic stay goes in effect upon filing the petition.  The automatic stay produces a legal barrier to collection actions by creditors.  They can no longer contact you in an attempt to collect a debt.

The court then appoints a trustee and sends notice to all your creditors telling them that you’ve filed bankruptcy.  You’ll receive a copy of that notice simultaneously with the your creditors.

Initial Meeting of Creditors

You must appear at a meeting of creditors.  This is ordinarily called the section 341 meeting.  It takes its name from the section of the Bankruptcy Code that describes the meeting.  At the meeting of creditors, the trustee will ask you questions about your assets and liabilities.  Your answers are given under oath and carry the penalty of perjury.  Creditors can likewise question you about those subjects, but they rarely do so.

After The First Meeting of Creditors

If you own several non-exempt assets, the trustee will take charge of them. The trustee will sell the non-exempt assets and apply the income to the expenses of administering your case.  He’ll also dispense any left over money to creditors with allowed claims.  Each claim is assigned a priority according to the Bankrtupcy Code.  Those claims are paid off in order of the priority of the claims.  

The trustee may check out your income and expense schedule to find out whether you have sufficient money remaining after your actual living expenses to give something to creditors.  Any money you make after the case is begun is yours.  It’s beyond the touch of creditors who have dischargeable debts on the date of filing.

Ordinarily, the sole duty you have after the 341 meeting is to cooperate with the trustee by supplying whatever information he calls for.

Receiving A Discharge

The trustee and your creditors get a 60 day period of time following the 341 meeting during which they may challenge your right to a discharge in general or the dischargeability of a particular debt.  Unless a petition to deny your discharge is filed, the order providing the discharge of debts is released by the court soon after the 60 day period lapses.  If one creditor files a dispute to your discharge it doesn’t preclude or hold up the entering of a discharge of the rest of your debts.

As a precondition to your discharge, you must complete a financial training class from an authorized provider. The class ordinarily lasts for several hours.  Most authorized providers make online classes available. Your failure to attend the course and file a certificate of completion of the course of instruction may lead to your case being closed without entry of a discharge order. The court can charge you another filing fee to reopen the case, file the certificate and enter the discharge.

You can normally look for your discharge within 4-6 months of filing your case. The discharge touches dischargeable debts that existed at the commencement of your case.

Some debts do come through a Chapter 7 bankruptcy discharge.  They’re excluded from the discharge by law.  Those specified debts are taxes, child support, student loans, and liens.  If you reaffirm any debts they also survive the bankruptcy discharge.

Harvey L. Cox is a licensed attorney who runs a bankruptcy information site.  Please visit The Bankruptcy Info Center to get more quality bankruptcy information and tips.

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strong>The New Bankruptcy Laws Make it More Challenging to File Chapter 7 Bankruptcy

The most recent changes to bankruptcy laws might make it more difficult for you to file bankruptcy. If you’re in a higher income bracket you’ll no longer be permitted to use Chapter 7 bankruptcy.  Instead, you’ll have to file under Chapter 13 bankruptcy and pay back at least a few of your debts. If you want to file bankruptcy, you must take part in credit guidance prior to filing.  You’re likewise required to attend further counseling in the discipline of budgeting and debt management.  The supplementary counseling is a prerequisite to obtain a release of your debts. And, since the law imposes new requirements on attorneys, you might have a harder time finding a attorney to accept your bankruptcy case.

Modified Eligibility for Chapter 7 Bankruptcy

Under the past bankruptcy laws, you were allowed to select the type of bankruptcy that looked best for you.  In virtually all cases that would be a Chapter 7 bankruptcy liquidation instead of a Chapter 13 bankruptcy repayment. But, if you’re in a high income bracket, the new bankruptcy laws won’t let you to utilize Chapter 7 bankruptcy.

To see out whether you’re able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first measure your “current monthly income” against the median income for a family of your size in your state. If your income is lower than or equivalent to the average, you’ll be able to file for Chapter 7 bankruptcy. If it’s more than the average, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is called “the means test.”

The intention of the means test is to ascertain whether you have enough available income, after subtracting certain allowed expenses and required debt payments, to make payments on a Chapter 13 program. To find out whether you pass the means test, you take off certain allowed expenses and debt payments from your current monthly income. If the money that’s remaining after these calculations is less than a certain sum, you’ll be able to file for Chapter 7.

Counseling Requirements

Prior to filing for bankruptcy under either Chapter 7 or Chapter 13, you must complete credit counseling with an agency approved by the United States Trustee’s office. The reason for this counseling requirement is that it helps you in determining whether you actually want to file for bankruptcy or whether an informal repayment program will help you regain your financial stability.

Counseling is mandatory even if it’s apparent that a repayment plan isn’t workable for you.  You’re expected merely to participate in the counseling.  You don’t have to consent to any repayment program the agency provides. Even so, before you’ll be able to file bankruptcy, you’ll have to show any repayment program the agency proposes along with a certificate attesting that you completed the counseling.

Near the end of your bankruptcy case, you’ll have to go to a new counseling session.  This counseling session is designed to teach you personal financial management skills. You can’t obtain the discharge that cancels out your debts until you deliver proof to the court that you finished this requirement.

Attorneys Might Be Harder to Locate — and a Great Deal More Expensive

The new bankruptcy laws do add numerous complicated demands to bankruptcy cases. Some of these recent demands impose more obligations on lawyers resulting in bankruptcy cases being more time intensive. Among the leading new demands on attorneys is that they must now personally ensure the accuracy of all the information their clients give them.  That extra requirement means that attorneys must spend significant amounts of time on every bankruptcy case.  Thus, they’ll charge more to handle every bankruptcy case.   The new bankruptcy law demands have in reality driven a few bankruptcy lawyers out of the field completely.

Many Chapter 13 Filers Will Learn to Exist on Less

When you filed Chapter 13 bankruptcy under the older bankruptcy laws,  you had to pay all of your spendable income to your repayment plan.  The former bankruptcy laws defined spendable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have adjusted this calculation.  While you still must turn over all of your usable income, if your income is larger than the median in your state, you don’t get to calculate your usable income based on your true expenses.  Instead, you have to compute your available income implementing allowed expense sums established by the IRS. And these allowed expense sums must be deducted from your average income during the six months before filing bankruptcy, not from your real wages every month.

Additional Changes

There are additional changes that can impact you negatively if you’re filing or looking at filing bankruptcy.  For plain-English guidance in the new bankruptcy laws, get a copy of The New Bankruptcy: Will It Work for You?

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Life after bankruptcy can have a great impact on your financial life. For some, bankruptcy provides a fresh start and debtors receive numerous loan and credit offers before their debts are even fully discharged. For others, bankruptcy prevents them from getting a decent interest rate on a house or other major purchase. It is always important to consider all of the ramifications and other options before making the final decision to file bankruptcy.

One of the biggest complaints that people have about bankruptcy for the sake of a new start is that it does not change a person’s habits. Oftentimes, people get deep in debt because of bad spending habits or because of letting their credit cards and consumer debts get out of control. The actions you take after bankruptcy are vital to keeping the management of your finances under control. This is one reason that bankruptcy does not actually help people. Without behavior change, the majority of filers fall back into the same destructive spending habits that they had before their debts were discharged. Therefore, recognizing that you have a spending problem is vital before considering bankruptcy.

Once people have decided to go through bankruptcy, the next step is to change their personal habits in order to avoid the same predicament in the future. Credit cards are dangerous for people who have not shown that they can use them responsibly. A general rule is that if you are unable to pay the balance off every month, then owning a credit card is not in your best interest. Unfortunately, credit is all too often extended to these people soon after bankruptcy, which makes it easy to fall back into the same spending habits that resulted in a bankruptcy in the first place.

The final step following a bankruptcy is to deal with the negative ramifications it has on your credit. For purposes of getting a home mortgage, bankruptcy will stay on your credit record for the rest of your life. This could be bad news for the interest rate or the repayment terms of your mortgage even several years after bankruptcy. If you file bankruptcy due to one single major setback in your life, such as an illness that resulted in huge medical bills or a job loss, some mortgage companies will work with you. While it still shows up on your credit, mortgage companies that do manual underwriting can customize your home loan and they will consider your specific situation. Be sure to save any papers related to the event so you can present them to the mortgage company when it is time to buy a home.

You can take several steps and measures to lessen the negative effects that your debts have caused after bankruptcy. Contrary to what many people believe, bankruptcy is not the end of your financial world. Of course, the most important thing to do is to change your financial habits if spending was the cause of your bankruptcy. Personal habits are to blame for the majority of bankruptcy filings, but bankruptcies can also erupt from single events that destroy your financial plans. Either way, bankruptcy for people who have learned from their mistakes is not always a bad idea.

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