Topics on this page:
- What is Chapter 7 Bankruptcy?
- Chapter 7 Bankruptcy Process
- What Can I Expect After Filing Chapter 7 Bankruptcy?
- Credit Counseling and Debtor Education Courses
Chapter 7 Bankruptcy is a federal court process designed to eliminate most of your debts. Elimination of your debts is completed through "liquidation" - the sale of your property and the distribution of the proceeds to your creditors. The court will appoint a trustee who will arrange to liquidate all your assets, except for certain "exempt" assets. Exempt assets are assets that cannot be sold to pay your creditors.
After your non-exempt assets are sold and the funds given to your creditors, all your remaining debts are discharged or wiped out. This means that you will no longer be personally liable for repaying the debts. You will normally receive a discharge just a few months after your petition is filed. In many Chapter 7 cases, there is little or no nonexempt property. In these cases, called "no-asset cases,” there may not be an actual liquidation of assets.
In a Chapter 7 case, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
If you are granted a Chapter 7 bankruptcy, you cannot file for a Chapter 7 Bankruptcy again until 8 years have passed. (You can file for a Chapter 13 Bankruptcy 4 years after receiving a Chapter 7 discharge.) If you had a bankruptcy case dismissed, you usually will have to wait 180 days (6 months) before you can file again. (If the case was dismissed "without prejudice" you can refile sooner.) You can also file for Chapter 7 if you previously filed a Chapter 13 bankruptcy plan and paid at least 70% of the unsecured debt.
Read the law: U.S. Code, Title 11, Chapter 7
Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court. Bankruptcy cases in Maryland are filed in the United States Bankruptcy Court for the District of Maryland.
A Chapter 7 case begins when you file a petition with the bankruptcy court. In addition to the petition, you must also file with the court:
- schedules of assets and liabilities
- a schedule of current income and expenditures
- a statement of financial affairs
- a schedule of executory contracts and unexpired leases
You must also provide to the trustee assigned by the court a copy of you most recent tax return, as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began).
Individual debtors with primarily consumer debts have additional document filing requirements including:
- certificate of credit counseling
- copy of any debt repayment plan developed through credit counseling
- evidence of payment from employers, if any, received 60 days before filing
- statement of monthly net income and any anticipated increase in income or expenses after filing
- record of any interest the debtor has in federal or state qualified education or tuition accounts.
Married individuals must gather financial information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household's financial position.
Between 21 and 40 days after the petition is filed, the trustee assigned by the court will hold a meeting of creditors. During this meeting, the trustee will put you under oath, and both the trustee and your creditors may ask you questions. You must attend the meeting and answer questions regarding your financial affairs and property. If you have filed a joint petition, both you and your spouse must attend the creditors' meeting and answer questions. Within 10 days of the creditors' meeting, the trustee will report to the court.
In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors. A discharge releases you from personal liability for most debts and prevents the creditors you owed those debts from taking any collection actions against you. However, certain types of debts cannot be discharged in chapter 7. The most common debts that cannot be discharged are child support, back taxes, and alimony. The complete list of debts that cannot be discharged is contained in United States Code, Title 11 § 523(a) and Md. Code, Courts & Judicial Proceedings § 11-504.
Fees for filing a bankruptcy petition include a case filing fee, an administrative fee, and a trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With the court's permission, however, individual debtors may pay in installments. Learn more about fees.
You will be assigned a bankruptcy trustee
The court will appoint a person called a "trustee." The trustee will take legal control of your debts and your property (except the exempt property that you get to control and keep). The trustee will try to pay your creditors as much as possible by selling your property. Sometimes a trustee will allow you to swap exempt property for non-exempt property if it is of equal value.
An automatic stay will go into effect.
The court will send out a notice to all your creditors. The notice will tell the creditor that you have filed for a Chapter 7 Bankruptcy and that the creditor is under court order (a "stay") to immediately stop all efforts that they have been making to collect the debts you owe to them.
You will attend a meeting of creditors.
About 4-6 weeks after you file, you will need to attend a hearing called a "meeting of creditors". At this hearing the trustee will look at your papers and ask you questions about your finances. This meeting is informally called a "341 meeting" because section 341 of the Bankruptcy Code requires that you attend this meeting so that the people or businesses to whom you owe money (creditors) can question you about your debts and property. The meeting generally takes about 10-20 minutes. This is usually the only hearing you will need to attend.
You will receive reaffirmation agreements
After filing a Chapter 7 bankruptcy, and after your creditor’s meeting, creditors may send you a document called a reaffirmation agreement. A reaffirmation agreement is an agreement that indicates you will pay all or a portion of the money owed, even though you have filed bankruptcy. By reaffirming a debt, you agree that you will continue to owe it once your bankruptcy is over -- even though it would otherwise have been discharged.
Most often, reaffirmation agreements are used to keep a car after bankruptcy. You will sign a new contract with the lender on the same terms as before. The new contract is known as a "reaffirmation agreement" because in the new contract, you "reaffirm" or agree to continue paying for the car as if you had not filed for bankruptcy. Before signing a reaffirmation agreement, you may consider seeking advice from an attorney. After all, you filed bankruptcy to get rid of as much debt as possible.
You will take a personal financial management course
You will be required to complete a personal financial management course before you receive your discharge. This course is in addition to the credit counseling you took before filing your petition.
You will receive a discharge
Finally, you will receive your discharge. Most types of debt can be discharged through a Chapter 7 bankruptcy, with a few exceptions like taxes, domestic obligations or child support. Your discharge gives you a fresh start and removes the legal obligation for you to repay any of the discharged debt.
All individual bankruptcy filers are required to complete pre-bankruptcy credit counseling and pre-discharge debtor education. These may not be provided at the same time. Credit counseling must take place before you file for bankruptcy; debtor education must take place after you file.
Certificate of completion for both credit counseling and debtor education are required but before the filer’s debts can be discharged. Only credit counseling organizations and debtor education course providers that have been approved by the U.S. Trustee Program may issue these certificates. Find an approved credit counseling agency or debtor education provider.