What can I expect from a Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is a federal court process designed to eliminate or liquidate most of your debts. The court will appoint a trustee, who will arrange to liquidate all of your assets, with the exception of certain "exempt" assets. Exempt assets are assets that cannot be sold to satisfy your creditors. After your non-exempt assets are sold and the funds given to your creditors, all of your remaining debts are discharged or wiped out. The process usually takes about 4 to 6 months.
First you will file a petition with the court and supplemental materials including:
- 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
- recent tax returns
Individual debtors with primarily consumer debts have additional document filing requirements including:
- A certificate of credit counseling
- A copy of any debt repayment plan developed through credit counseling
- Evidence of payment from employers, if any, received 60 days before filing;
- A statement of monthly net income and any anticipated increase in income or expenses after filing
- A record of any interest the debtor has in federal or state qualified education or tuition accounts.
The court will send out a notice to all of 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.
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).
About a month or six 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. Usually the meeting is about 10-20 minutes. Sometimes the people or businesses to whom you owe money (creditors) will attend. This is usually the only hearing you will need to attend.
You must now turn over your property. The trustee will then 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. After a few months, most of your debts will be discharged (eliminated). You cannot file another Chapter 7 Bankruptcy for 8 years.
The courts must charge a case filing fee, an administrative fee, and a trustee surcharge. For more information on fees, click here.
Almost any individual, partnership, or corporation may file a Chapter 7 Bankruptcy petition if he or she resides, has a domicile, a place of business, or property in the United States, or a municipality.
If you are granted a Chapter 7 or Chapter 13 discharge, 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 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.
For details see Liquidation Under the Bankruptcy Code published by the U.S.Courts.