How Chapter 7 Works:
Chapter 7 Bankruptcy or liquidation bankruptcy is usually referred to as the "Fresh Start" bankruptcy.
In this type of bankruptcy, your non-exempt assets, or assets that are not protected under the relevant exemption laws (In Georgia you have Georgia exemptions codified in the Official Code of Georgia) can be liquidated by the trustee and the money that is recovered is distributed between your creditors. This does not happen in every chapter 7 bankruptcy. In fact, most people who file for bankruptcy don't have assets that are subject to liquidation.
One of the key benefits is that Chapter 7 bankruptcy will wipe out any unsecured debt such as credit card debt, medical bills, and auto repossessions. A key disadvantage is that your non-exempt assets are not protected in a Chapter 7 bankruptcy and can be sold by the trustee. Your secured creditors such as mortgage companies and car companies are not obligated to work with you.
What is filed:
Once your case is properly filed, then you are called a Debtor. We know it does not sound very good, but Congress actually changed the name for those filing for bankruptcy from bankrupt to debtor. In order to file for a Chapter 7 bankruptcy, a Debtor has to file a petition together with schedules of assets and liabilities, schedules of current income and expenses, a statement of financial affairs, a statement of current montly income or the means test (Form B22), and a schedule of executory contracts and unexpired leases. Additional documentation may also be necessary. A Debtor must also complete a pre-filing credit counseling session and include a certificate of completion with his or her bankruptcy petition. The pre-filing credit counseling certificate is good for 180 days. A Debtor must also provide the trustee that is assigned to the case a copy of his or her income tax returns. The Debtor also needs to file all pay stubs he or she received for the 60 days preceding the filing date.
The following information must be fully disclosed in a Debtor’s bankruptcy documents:
- A list of all creditors and the amount and nature of creditors' claims;
- The source, amount, and frequency of the Debtor's income;
- A list of all of the Debtor's property; and
- A detailed list of the Debtor's monthly living expenses (i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.)
If you are married and only one of you wants to file bankruptcy, then you may do so under 11 U.S.C. § 302(a). This issue is discussed in the Bankruptcy Questions section of this website.
The Bankruptcy Code allows exempting some of your personal and real property. So, even though Chapter 7 is a liquidation bankruptcy, not everything can be liquidated. In other words, there are assets that you are allowed to keep. Such assets are called exempt property in the bankruptcy world. These exemptions may be pursuant to state or federal law. For example, in the State of Georgia, those exemptions are codified in O.C.G.A. § 44-13-100 and are pursuant to state law. If you want to know whether your property is exempt, we suggest contacting a bankruptcy attorney in the state you live. If you live in Georgia, give us a call. I have included an explanation of exempt property in my Bankruptcy Questions section. Check it out.
Means Testing:
Means testing is also required. This is a fairly new addition to the Bankruptcy Code and it serves different purposes in Chapter 7 and Chapter 13 bankruptcies. In a Chapter 7 bankruptcy, its purpose is to determine if there is a presumption of abuse in your case. In terms of gross income, your household income is compared to the median income of a household of the same size in your geographic area. If you are above the median, the entire form needs to be filled out to determine whether your case is presumed abusive or not. This is a highly complicated and highly specialized form. To make matters even more complicated, the law is evolving on how this form needs to be filled out. Do not try to do your own means test unless you are an attorney and you are up on form B22 litigation. We have clients that downloaded trial versions of software designed for means testing. They tried to use it. It was a waste of their time.
What happens once a Chapter 7 case is filed?
Once your case is filed, your creditors' collections efforts must stop by operation of law. This is called the automatic stay, or stay. So, once the stay is in effect, you are protected. This is pursuant to 11 U.S.C. § 362. Just like everything else in law, there are exceptions to this rule. These exceptions are listed in 11 U.S.C. § 362(b). Some actions do not have to be stopped or stayed. Sometimes the stay comes into effect upon filing but then it is taken away. In some events, the stay does not come into effect unless it is imposed by the court. Generally speaking, most common creditor actions such as lawsuits, garnishments, foreclosures, and collection calls are stopped once your case is properly filed.
341 Meeting of Creditors:
The 341 meeting of creditors, or the 341 hearing for short, is required by the Bankruptcy Code and cannot be skipped. You also cannot give power of attorney to someone else to do the hearing for you. If you are incapacitated to the extent that you are unable to attend the hearing, your attorney typically can make arrangements with the U.S. Trustee’s Office to do it telephonically.
Even though this is called meeting of creditors, your creditors rarely show up, but they certainly have the right to do so. In your 341 meeting of creditors, you meet with the trustee that is appointed to administer your bankruptcy case. Your trustee will ask you questions about your debts and assets. Your attorney will prepare you for this hearing.
You must attend your 341 meeting of creditors. If you have filed a joint bankruptcy with your spouse, both of you must attend. You must bring a Government issued picture ID and an original proof of your Social Security number. You must have both these documents with you before your trustee can hold the 341 meeting of creditors for your bankruptcy case.
After your 341 hearing, you must complete your pre-discharge credit-counseling certificate. You can complete this credit counseling course at the same place you completed your pre-filing counseling certificate. You can also do it at any other organization that is approved by the U.S. Trustee’s Office. Make sure that your attorney receives a copy of the pre-discharge counseling certificate in time to file it with the court. If this counseling session is not completed and the certificate filed on time, your case will be closed and you will not receive a discharge of your debts. You have 45 days from the original date set for your meeting of creditors to do this. We suggest you complete this session as soon as your case is filed. Follow up with your attorney and make sure the certificate is promptly filed with the court.
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