Michael P. Corcoran is an Attorney with over 30 years of experience with Chapter 7 Bankruptcy and has filed thousands of cases. Chapter 7 bankruptcy is commonly known as “fresh start bankruptcy”. In addition it is by far the most common form of bankruptcy. It is also the quickest and least expensive form of bankruptcy. In general, a qualified person or married couple will receive a discharge of their unsecured debt. A “discharge” is a Federal Court Order prohibiting the collection of a listed debt. As a result of a Chapter 7 bankruptcy your creditors are prohibited from calling, billing, suing or contacting you. Lawsuits and garnishments are stopped, no matter where they are in the court process. In some cases, repossessed vehicles must be returned.
THE FOLLOWING QUESTIONS AND ANSWERS ABOUT CHAPTER 7 BANKRUPTCY ARE FOR INFORMATIONAL PURPOSES ONLY, AND NOT LEGAL ADVICE. THIS Q & A IS GENERAL IN NATURE. SPECIFIC INFORMATION, ASSET AND ESTATE PLANNING, SHOULD BE ADDRESSED BY AN ATTORNEY.
FREQUENTLY ASKED QUESTIONS AND ANSWERS ABOUT CHAPTER 7 BANKRUPTCY
1. What is a chapter 7 bankruptcy and how does it work?
A chapter 7 bankruptcy is a proceeding under federal law in which one seeks relief under the Bankruptcy Code. Additionally Chapter 7 is a chapter of the Bankruptcy Code that deals with liquidation. Also, one must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the person’s creditors. In return, the debtor receives a chapter 7 discharge.
2. What is a chapter 7 discharge?
It is a court order releasing a debtor from all dischargeable debts and ordering the creditors not to attempt to collect from the debtor. A debt that is discharged is a debt that the debtor is released from and does not have to pay.
3. Who is permitted to file a chapter 7 case?
Any person who resides in, does business in, or has property in the United States and has not previously filed a prior bankruptcy case dismissed 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.
4. What types of debts are not dischargeable in a chapter 7?
(1) Most tax debts and debts incurred to pay nondischargeable tax debts.
(2) Money, property, services, or credit obtained by means of fraud.
(3) Debts not listed on the chapter 7 forms, unless the creditor knew of the bankruptcy case in time to file a claim.
(4) Debts for fraud, embezzlement, or larceny.
(5) Domestic support obligations.
(6) Debts for intentional or malicious injury to the person or property of another.
(7) Fines or penalties.
(8) Educational benefits and student loans.
(9) Debts for personal injury or death caused by the debtor’s operation of a motor vehicle, vessel or aircraft while intoxicated.
(10) Debts listed in a previous bankruptcy of the debtor in which the debtor did not receive a discharge.
5. How much is the filing fee in a chapter 7 and when must it be paid?
The filing fee is $335.00 for either a single or a joint case. The filing fee is payable when the case is filed. However, if the person filing can show that his or her income is less than 150 percent of the official poverty line and that he or she is unable to pay the filing fee, the court can waive payment of the filing fee. Additionally, if the person filing is unable to pay the entire filing fee when the case is filed, it may be paid in up to four installments, with the final installment due within 120 days.
6. Where should a chapter 7 case be filed?
A chapter 7 case is filed in the office of the clerk of the bankruptcy court in the district where the debtor has resided or maintained a principal place of business for the greater portion of the last 180 days.
7. May a husband and wife file jointly under chapter 7?
Yes. If a joint chapter 7 case is filed, only one set of bankruptcy forms is needed and only one filing fee is charged. However, both husband and wife must receive the required credit counseling before the case is filed and both must complete the required financial management course after the case is filed.
8. How does filing a chapter 7 affect collection and legal proceedings that have been filed against that person?
Due to the filing of a chapter 7 case it automatically suspends collection and other legal proceedings pending against that person. The court will mail a notice to all creditors ordering them to refrain from any further action against the person.
9. How does filing a chapter 7 case affect a person’s credit rating?
It will usually worsen it, if that is possible. However, some financial institutions openly solicit business from persons who have recently filed under chapter 7, 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.
10. Are the names of persons who file chapter 7 cases published?
When a chapter 7 case is filed, it becomes a public record and the names of the persons filing may be published by some credit-reporting agencies. However, newspapers do not usually report or publish the names of consumers who file chapter 7 cases.
11. Are employers notified of chapter 7 cases?
Employers are not usually notified when a chapter 7 case is filed. However, the trustee in a chapter 7 case often contacts an employer seeking information as to the status of the person’s wages or salary at the time the case is filed.
12. When must a person appear in court in a chapter 7 case and what happens?
The first court hearing is called the “meeting of creditors,” which is held after the case is filed. The person filing must bring a photo identification and a social security card. While the person attends this hearing the person is under oath and questioned about his or her debts, assets, income and expenses by the trustee. In most chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the person.
13. What is a trustee in a chapter 7 case, and what does he or she do?
The trustee is a person appointed by the United States trustee to examine the person who filed the case, collect the person’s nonexempt property, 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.
14. What happens to property that is turned over to the trustee?
It is usually converted to cash, which is used to pay the fees and expenses of the trustee, to pay the claims of priority creditors, and, if there is any left, to pay the claims of unsecured creditors.
15. May a utility company refuse to provide service to a person if the company’s utility bill is discharged under chapter 7?
If the person filing furnishes a utility company with a security deposit to insure the payment of future utility services within 20 days of filing the case, it is illegal for a utility company to refuse to provide utility service to the person.
16. What should a person do if he or she moves before the chapter 7 case is completed?
The person should immediately notify the bankruptcy court in writing of the new address. Otherwise, the person may fail to receive important notices and the chapter 7 case may be dismissed.
17. How is a person notified when his or her discharge has been granted?
The person is notified by mail with a form called “Discharge of Debtor”.
18. What if a person wishes to repay a dischargeable debt?
A person may repay any dischargeable debts as desired after filing a chapter 7 case.
19. How long does a chapter 7 case last?
A chapter 7 case begins with the filing of the bankruptcy 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. Rather, 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.
20. What should a person do if a creditor attempts to collect a debt that was discharged in his or her chapter 7 case?
A creditor who violates a chapter 7 discharge order may be held in contempt of court and may consequently be liable to the person for damages. If a creditor attempts to collect a discharged debt from the person, the person should give the creditor a copy of his or her chapter 7 discharge and inform the creditor in writing that the debt was discharged in the case. If the creditor persists, the person should contact an attorney. If a creditor files a lawsuit on a discharged debt, it is important to inform the court in which the lawsuit is filed that the debt was discharged in bankruptcy. The lawsuit should not be ignored.
21. How does a chapter 7 discharge affect cosigners and other parties liable on a discharged debt?
A chapter 7 discharge releases only the person or persons who filed the chapter 7 case. Therefore the non filing person who has cosigned or guaranteed a debt for the person filing is still liable for the debt.