Chapter 7 Bankruptcy FAQ

A Chapter 7 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under Chapter 7 of the Bankruptcy Code.  Chapter 7 is that part (or Chapter) of the Bankruptcy Code that deals with liquidation.  The Bankruptcy Code is a federal law that deals with bankruptcy.  A person who files a Chapter 7 case is called a debtor.  In a Chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor’s creditors.  In return, the debtor receives a Chapter 7 discharge, if he or she pays the filing fee, is eligible for the discharge, and obeys the orders and rules of the bankruptcy court.

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor.  A debt that is discharged is a debt that the debtor is released from and does not have to pay.

A Chapter 7 discharge is obtained by filing and maintaining a Chapter 7 bankruptcy case and being eligible for a Chapter 7 discharge.  However, not all debts are discharged by a Chapter 7 discharge.  Certain types of debts are by law not dischargeable under Chapter 7 and debts of this type will not be discharged even if the debtor receives a Chapter 7 discharge.

Any person who resides in, does business in, or has property in the United States is permitted to file a Chapter 7 bankruptcy case except a person who has intentionally dismissed a prior bankruptcy case within the last 180 days.  To be permitted to maintain a Chapter 7 bankruptcy case a person must qualify for Chapter 7 relief under a process called means testing.

Means testing is a method of determining a person’s eligibility to maintain a Chapter 7 case.  Under means testing a person whose current monthly income from all sources multiplied by 12 exceeds the median annual income, as reported by the U.S. Census Bureau, for the person’s state and family size, must show that he or she has a disposable monthly income of less than $124.58.  If disposable monthly income is greater than $207.92, there is a presumption of abuse in filing a Chapter 7 case.  Overcoming presumptions is a key part of the services rendered by Attorney Richard Bolger. Schedule an appointment to see how you would be affected by the filing of a bankruptcy petition.  If monthly disposable income is between those two numbers, then you must determine whether the debtor could repay at least 25% of unsecured debt over the course of a 60-month period.  If a debtor is deemed to be able to pay, their case will be dismissed or converted to Chapter 13 unless special circumstances exist.

Every person who files a Chapter 7 case must file a Chapter 7 Statement of Your Current Monthly Income (Official Form 122A-1) and a Chapter 7 Means Test Calculation (Official Form 122A-2).  These forms, when completed and filed, show the person’s current monthly income and the current monthly expenses that the person is allowed to claim.  The person may also be questioned about his or her income and expenses at the meeting of creditors.  From these sources a person’s current monthly disposable income is calculated.  This figure is then used to determine the amount of the monthly payment that the person can afford to make to his or her unsecured creditors.  If the person’s monthly disposable income is greater than $207.92, the person will almost always be disqualified from maintaining a Chapter 7 case and the case will be dismissed or, with the person’s consent, converted to Chapter 13.

The Chapter 7 Statement of Your Current Monthly Income (Official Form 122A-1) and a Chapter 7 Means Test Calculation (Official Form 122A-2) filed by the person will initially show whether the person is able to make monthly payments to unsecured creditors in the amount required for ineligibility.  If so, the clerk of the bankruptcy court will send a notice to all creditors that a presumption of abuse has arisen in the case.  The United States trustee then has until 10 days after the meeting of creditors to file a statement as to whether a presumption of abuse exists in the case.  Then the United States trustee or any creditor can move to dismiss the case.  The bankruptcy judge will ultimately decide whether the case should be dismissed.

When a Chapter 7 case is filed by an ineligible person, under bankruptcy terminology that person is said to have abused the Chapter 7 laws.  When a person whose current monthly disposable income is such that he or she can afford to make monthly payments to unsecured creditors in the required amount, a presumption of abuse is said to arise in the case.  If a presumption of abuse arises in a case, the case will be dismissed or converted to Chapter 13 unless the person filing the case can prove the existence of special circumstances, such as a serious medical condition.  Overcoming presumptions is a key part of the services rendered by Attorney Richard Bolger. Schedule an appointment to see how you would be affected by the filing of a bankruptcy petition.

Any person who is qualified to file and maintain a Chapter 7 case is eligible for a Chapter 7 discharge except the following (see 11 U.S.C. § 727):

(1) A person who has been granted a discharge in a Chapter 7 case that was filed within the last 8 years.

(2) A person who has been granted a discharge in a Chapter 13 case that was filed within the last 6 years, unless 70 percent or more of the debtor’s unsecured claims were paid off in the chap-ter 13 case.

(3) A person who files and obtains court approval of a written waiver of discharge in the Chapter 7 case.

(4) A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the Chapter 7 case.

(5) A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions.

(6) A person who makes false statements or claims in the Chapter 7 case, or who withholds recorded information from the trustee.

(7) A person who fails to satisfactorily explain any loss or deficiency of his or her assets.

(8) A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.

(9) A person who, after filing the case, fails to complete an instructional course on personal financial management.

(10) A person who has been convicted of bankruptcy fraud or who owes a debt arising from a securities law violation.

All debts of any type or amount, including out-of-state debts, are dischargeable in a Chapter 7 case except for the types of debts that are by law nondischargeable in a Chapter 7 case.  The following is a list of the most common types of debts that are not dischargeable in a Chapter 7 case:

(1) Most tax debts and debts that were incurred to pay nondischargeable federal tax debts.

(2) Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the bankruptcy case.

(3) Debts not listed on the debtor’s Chapter 7 forms, unless the creditor knew of the bankruptcy case in time to file a claim.

(4) Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the bankruptcy case.

(5) Debts for domestic support obligations, which include debts for alimony, maintenance, or support, and certain other divorce-related debts, including property settlement debts.

(6) Debts for intentional or malicious injury to the person or property of another, if the creditor files a com-plaint in the bankruptcy case.

(7) Debts for certain fines or penalties.

(8) Debts for most educational benefits and student loans, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.

(9) Debts for personal injury or death caused by the debtor’s operation of a motor vehicle, vessel or aircraft while intoxicated.

(10) Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not    receive a discharge.

A person who is not eligible for a Chapter 7 discharge should not file a Chapter 7 case.  Also, in most instances a person who has substantial debts that are not dischargeable under Chapter 7 should not file a Chapter 7 case.

Yes.  A person is not permitted to file a Chapter 7 case unless he or she has, during the 180 day period prior to filing, received from an approved nonprofit budget and credit counseling agency an individual or group briefing that outlined the opportunities for available credit counseling and assisted the person in performing a budget analysis.  This briefing may be conducted by telephone or on the internet, if desired, and must be paid for by the person.  When the Chapter 7 case is filed, a certificate from the agency describing the services provided to the person must be filed with the court.

The filing fee is $335.00 for either a single or a joint (spouses) case.  The filing fee is payable when the case is filed.

Yes.  A spouses may file a joint case under Chapter 7.  If a joint Chapter 7 case is filed, only one set of bankruptcy forms is needed and only one filing fee is charged

Spouses should file a joint Chapter 7 case if both of them are liable for one or more significant dischargeable debts.  If both spouses are liable for a substantial debt and only one spouse files under Chapter 7, the creditor may later attempt to collect the debt from the nonfiling spouse, even if he or she has no income or assets.

The filing of a Chapter 7 case by a person automatically suspends virtually all collection and other legal proceedings pending against that person.  A few days after a Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the person.  This court-ordered suspension of creditor activity against the person filing is called the automatic stay.  If necessary, notice of the automatic stay may be served on a creditor earlier by the person or the person’s attorney.  Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable in damages to the person filing.  Criminal proceedings and actions to collect domestic support obligations from exempt property or property acquired by the person after the Chapter 7 case was filed are not affected by the automatic stay.  The automatic stay also does not protect cosigners and guarantors of the person filing (it does protect them In a Chapter 13) and a creditor may continue to collect debts from those persons after the case is filed.  Persons who have had a prior bankruptcy case dismissed within the past year may be denied the protection of the automatic stay.

Oftentimes, a person’s credit score will improve within one year of the filing date.  If a person has a high score when the case is filed, the score will usually worsen.  Some financial institutions openly solicit business from persons who have recently filed under Chapter 7, apparently because it will be at least 8 years before they can file another Chapter 7 case.  If there are compelling reasons for filing a Chapter 7 case that are not within the person’s control (such as an illness or an injury), some credit rating agencies may take that into account in rating the person’s credit after filing.  When Bolger Law Firm prepares your case, you will be advised of your predicted credit score one year after discharge.

When a Chapter 7 case is filed, it becomes a public record.

Employers are not ordinarily notified when a Chapter 7 case is filed.

No.  A Chapter 7 case is not a criminal proceeding and a person does not lose any civil or constitutional rights.

No.  It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a Chapter 7 case.  It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses (including a driver’s license), permits, student loans, and similar grants because that person has filed a Chapter 7 case.

Usually not.  Retaining your property is another key part of the services rendered by Attorney Richard Bolger.  Property which could be lost in a Chapter 7 is usually able to be retained in a Chapter 13. Schedule an appointment to see how you would be affected by the filing of a bankruptcy petition.

Exempt property is property that is protected by law from the claims of creditors.  However, if exempt property has been pledged to secure a debt or is otherwise encumbered by a valid lien or mortgage, the lien or mortgage holder may claim the exempt property by foreclosing upon or otherwise enforcing the creditor’s lien or mortgage.  In bankruptcy cases property may be exempt under either state or federal law.  Exempt property typically includes all or a portion of a person’s unpaid wages, home equity, household furniture, and personal effects.  Determining what property of yours is exempt is another key part of the services rendered by Attorney Richard Bolger. Schedule an appointment to see how you would be affected by the filing of a bankruptcy petition.

Usually the one and only time a person attends a hearing is at the so-called “Meeting of Creditors,” at which most creditors decline to attend.  Attorney Richard Bolger appears at the hearing with you.  He has been to thousands of such hearings.  The court personnel, US Trustee’s Office and panel trustees have worked with Mr. Bolger for many years in conducting these hearings.  The person filing the case must bring photo identification, his or her social security card (or an acceptable substitute).  At this hearing the person is put under oath and questioned about his or her debts, assets, income and expenses by the panel trustee.  In most Chapter 7 cases, no creditors appear in court; but any creditor that does appear is usually allowed to question the person.  For most persons this will be the only court appearance.

The trustee is a person appointed by the United States Trustee’s Office to examine the person who filed the case, collect the person’s nonexempt property, if any exists, and pay the expenses of the estate and the claims of creditors.  In addition, the trustee has certain administrative duties in a Chapter 7 case and is responsible for seeing to it that the person filing performs the required duties in the case.  A trustee is appointed in a Chapter 7 case, even if the person filing has no nonexempt property.

If, from the bankruptcy forms filed, it appears that the person filing has no nonexempt property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for them to file claims, and that if assets are later discovered they will then be given an opportunity to file claims.  This type of case is referred to as a no-asset case.  Most Chapter 7 cases that are filed by consumers are no-asset cases.  Determining if your case would be a no-asset case is part of the valuable services rendered by the Bolger Law Firm.

After a Chapter 7 case is filed, the person filing should provide a utility company with a deposit to ensure the payment of future utility services.  It is illegal for a utility company to refuse to provide utility service to the person after the case is filed, or to otherwise discriminate against the person, if its bill for past utility services is discharged in the  person’s Chapter 7 case.

A successful Chapter 7 case begins with the filing of the bankruptcy forms and ends with the closing of the case by the court.  If there are no nonexempt assets for the trustee to collect, the case will most likely be closed shortly after the person filing receives his or her discharge, which is usually about four months after the case is filed.  If there are nonexempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case.  Most Chapter 7 consumer cases with assets last about six months, but some last considerably longer.

A Chapter 7 discharge releases only the people who filed the Chapter 7 case.  The liability of any other party on a debt is not affected by a Chapter 7 discharge.  Therefore, a person who has cosigned or guaranteed a debt for the person filing is still liable for the debt even if the person filing receives a Chapter 7 discharge with respect to the debt.

The attorney for the person filing performs the following functions in a typical Chapter 7 consumer case:

(1) Analyze the amount and nature of the debts owed by the person filing and determine the best remedy for the person’s financial problems.

(2) Advise the person filing of the relief available under Chapter 7 and the other Chapters of the Bankruptcy Code, and of the advisability of proceeding under each Chapter.

(3) Assist the person in obtaining the required pre-filing credit counseling class.

(4) Assemble the information and data necessary to prepare the Chapter 7 forms for filing.

(5) Prepare the petitions, schedules, statements and other Chapter 7 forms for filing with the bankruptcy court.

(6) Assist the person filing in arranging his or her assets so as to enable the person to retain as many of the assets as possible after the Chapter 7 case.

(7) Filing the Chapter 7 petitions, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case.

(8) If necessary, assisting the person filing in reaffirming certain debts, redeeming personal property, setting aside mortgages or liens against exempt property, and otherwise carrying out the matters set forth in the statement of intention.

(9) Attending the meeting of creditors with the person and appearing with the person at any other hearings that may be held in the case.

(10)  Assist the debtor in attending and completing the required instructional course on personal financial management.

(11)  If necessary, preparing and filing amended schedules, statements, and other documents with the bankruptcy court in order to protect the rights of the person.

(12)  If necessary, assisting the person in overcoming obstacles that may arise to the granting of a Chapter 7 discharge.

The fee paid to an attorney representing the person filing in a Chapter 7 case must be disclosed to and approved by the bankruptcy court.  The court will allow the attorney to charge and collect a reasonable fee.  The courts require all attorneys fees and court costs be paid before filing the case is filed.