Chapter 7 Bankruptcy
Before Filing
Once
I receive a call from an interested debtor, I will engage in a brief
conversation about their situation to get a sense of where they are. If
they seem like a good candidate for bankruptcy then I will send a list
of information and required documents to them to bring to our first
meeting. As you can imagine, I am asking for a complete picture of their
financial life for the last couple of years.
1. All 3 credit reports
2. 6 months of pay stubs
3. 2 most recent tax returns
4. Title/Deed to everything they own
5. Most recent auto loan and mortgage statements
6. Completed intake questionnaire
For more on this go to my intake page.
Credit Counseling Requirement
Debtors must complete a credit counseling class with an approved institution within 180 days of the case being filed.
Filing
A
chapter 7 case starts with a voluntary petition being filed with the
division of the Maryland bankruptcy court assigned to the county where
the individual or couple lives or where the business debtor is organized
or has its principal place of business or principal assets.
Under
new rules, married debtors regardless of sexual orientation can now
file joint cases unlike in the past where it was defined as man and
woman.
Along with the petition, the debtor also files:
(1) schedules of assets and liabilities
(2) a schedule of current income and expenditures
(3) a statement of financial affairs
(4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b).
(5) Statement of current monthly income
(6) Means Test
Filing Fee
The
chapter 7 filing fee was raised to $335.00 as of June 1, 2014. The
filing fee can be paid in four (4) installments as long as a request is
made to the court at the time of filing. 28 U.S.C. § 1930(a); Fed. R.
Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8.
The number of installments is limited to four, and the debtor must make
the final installment no later than 120 days after filing the petition.
Fed. R. Bankr. P. 1006. Sometimes debtors are unable to pay the filing
fee in time and with the court’s permission they can get more time after
demonstrating a good reason for the request. Failure to pay will result
in dismissal.
Trustee
Upon
filing your chapter 7 case, a trustee is automatically assigned. The
trustee is a court appointed official who reviews your case to ensure
compliance with the law and maximize recovery for your creditors.
As
a debtor, you are required to provided a copy of most recent tax return
or transcripts for the most recent tax year as well as any returns
filed while the case is pending 11 U.S.C. § 521. Proof of income over
the sixt (60) days prior to thefiling of your case. For those with jobs,
pay stubs and commission pay outs are required. Self-employed
individuals must prepare profit and loss statements.
Schedules
The schedules filed in the chapter 7 provide the court and your creditors the following information:
-
A list of all creditors and the amount owed
-
Debtor’s income
-
Debtor’s assets
-
List of exempt property
-
Debtor’s monthly living expenses, from rent, food to entertainment.
Once a
petition is filed under chapter 7, the automatic stay goes into effect
and collection actions against the debtor or the debtor’s property must
cease. 11 U.S.C. § 362. No additional court orders are need for the
automatic stay to take effect. This can be a bone of contention
especially when a wage garnishment is in effect and inexperienced
employers may insist on receiving a court order from the state courts
before stopping the garnishment. Moreover, with the stay in place,
creditors cannot initiate new collection activity.
MEETING OF CREDITORS
Approximately
30-45 days after the case is filed, a hearing known as a meeting of
creditors is held. Debtor must attend the meeting and testify as to his
or her case under oath. Both the trustee and creditors can ask the
debtor questions. 11 U.S.C. § 343. At the meeting, the trustee will
verify basic biographical information such as name, address and social
security number. In addition, the trustee will ask questions to verify
the accuracy of the petition in terms of assets, liabilities and
expenses. The trustee can go as far as four years prior to the filing of
your case in accordance with the disclosure required in the Statement
of Financial Affairs.
If
the trustee is satisfied in the debtor’s responses and find that there
are no assets available to pay off creditors then he or she will
conclude the meeting. Otherwise, a meeting will be held open or even
debtors may be required to return for further examination and submission
of requested documents. Most trustees in my experience will take
detailed written explanations and documentation to resolve issues before
calling for a second meeting of creditors.
In
order to accord the debtor complete relief, the Bankruptcy Code allows
the debtor to convert a chapter 7 case to a case under chapter 11, 12,
or 13 (6) as long as the debtor is eligible to be a debtor under the new
chapter. However, a condition of the debtor’s voluntary conversion is
that the case has not previously been converted to chapter 7 from
another chapter. 11 U.S.C. § 706(a). Thus, the debtor will not be
permitted to convert the case repeatedly from one chapter to another.
Once
the trustee is satisfied and there is nothing to pay back your
creditors the trustee will issue a no asset report. In the report, he or
she will list your assets and liabilities along with an explanation
that there is nothing that can be taken to pay down your debt.
Financial Management Course
Debtors
are required to take a second debt management course known as the
financial management course before an order of discharge can be entered.
This takes about an hour and a half to complete and can be done online,
over the phone or in person. Costs vary with some programs being as
little as $10.00. Live classes are the most expensive.
Discharge
An
order of discharge in a chapter 7 case occurs 60 days after the meeting
of creditors. This refers to an order holding that the debtor is no
longer personal responsible for certain debts. Since not all debts can
be discharged, debtors may still be subject to debts such as income tax,
student loans and alimony.
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