Chapter 7 Overview: “What Does It Mean For Me?”
A personal, no asset, bankruptcy is known as Chapter 7. For this type of bankruptcy, our clients keep all of the assets they want to keep (home if it qualifies, motor vehicle, personal property, clothing, etc.) and discharge all their consumer debts. We will work with you to determine that all of your assets are kept protected from creditors.
We work with the client to determine if they qualify. Once the client hires us, and is able to supply us with the documents we need, we prepare all of the paperwork to complete the Chapter 7 Petition and Schedules. We forward them to the client for review and signature. When finalized, we file with the Bankruptcy Court electronically. Thirty days later there is a hearing before a Chapter 7 Trustee. This is called a Creditor Meeting or 341 Hearing.
Creditor Hearings usually last only a few minutes. Our clients are prepared to testify to the questions the Trustee has. We accompany all clients to the Creditor Hearing.
Sixty days after the Creditor Hearing the debts are discharged by federal law.
Chapter 7 FAQs
What happens when I file?
Once you receive your credit counseling certificate, your petition (along with all of your other required supporting schedules, statements and verifications) is filed with the bankruptcy court and assigned to a trustee on the Chapter 7 trustee panel. Usually, the trustee is a local lawyer. When you file bankruptcy, an “estate” is created and that estate is what collects property, sells it and gives the proceeds to creditors. The trustee represents the bankruptcy “estate” and is responsible for ensuring your petition is correct and accurate and that you are entitled to a discharge. The trustee also is responsible for collecting any non-exempt property, selling it and disbursing the proceeds to the creditors.
Within about 30 days, you meet with the Chapter 7 Trustee (along with your attorney) at what is called a “Meeting of Creditors” or a Section 341 meeting. Your attorney will be able to explain what you can expect at that meeting.
Assuming there are no issues that could delay the case, you will receive a discharge of your debts within a few months. This discharge releases you from your dischargeable debts – meaning you do not have to pay them. Bear in mind, it does not discharge you from debts that the US Bankruptcy Code declares as nondischargeable. After reviewing your case, we can determine whether there are debts that may survive your bankruptcy discharge.
How can I keep my property?
Property that is exempt from Chapter 7 bankruptcy may not be liquidated or sold to pay creditors. When we say “exempt” we mean that it cannot be sold to pay creditors, or more accurately, it is exempt from the bankruptcy estate. Federal and state laws protect some types of property for their full value. (For example, under state law, you can exempt an individual retirement account.) Other types of property, however, are protected only up to a certain amount.
Only a qualified and experienced bankruptcy attorney can determine what property may be exempted—and do so while trying to protect as much of your property as legally permissible.
Why would I want to file a Chapter 13 if I can file a Chapter 7?
Your attorney must evaluate many factors before making an informed and sound recommendation about which bankruptcy chapter is right for you. Income, debt/asset ratio and availability of exemptions are among the factors an attorney considers. The US Bankruptcy Code, and the ever-evolving case law will dictate what chapter will be best for you. Also, it’s important for you to know that if you are behind on your mortgage payments, and you want to file bankruptcy to avoid losing your house, Chapter 7 is probably not your best option.
I am heading into foreclosure! Can I save my house?
This is not an easy question to answer without knowing a lot more and it is to depend on your unique circumstances. If you are many months behind in payments, you should probably consider Chapter 13. If you know you cannot afford your future mortgage payments, you might benefit from Chapter 7. But again, the only way you can know for sure is to meet with a bankruptcy attorney.
What about my credit? Won’t it be ruined forever?
Not necessarily. A bankruptcy is a derogatory mark on your credit report. However, so are credit counseling, charge-offs, missed payments, foreclosures and repossessions. If you’re contemplating bankruptcy, you probably have one or more of these items already on your credit report and your credit rating has been a affected.
Bankruptcy will stay on your credit report for 10 years. However, there are legitimate methods of reestablishing your credit, such as reaffirming a secured debt or obtaining a secured credit card. Using those accounts responsibly and paying the debts on time will eventually help you reestablish your credit.
Please be mindful that your ability to get credit depends both on factors within your control—and factors beyond your control, such as the economy, a credit crunch and job stability.
What information should I bring with me to my consultation?
To get the most out of your first consultation with us, you should have the following information:
• 6 months of pay stubs and income information,
• an estimate of your debt, both secured and unsecured (or just bring your bills
• an estimate of your monthly expenses, and
• information concerning all assets: real estate, automobiles, etc.
Our consultations are a two step process. Call our office to schedule an appointment. You will be asked to provide all contact information as well as a general description of the financial circumstances you find yourself in. At that point, a free telephone consultation is scheduled with one of our bankruptcy attorneys.
During that consultation, your attorney will get more details about your situation to determine whether we can be of assistance. If we can, we’ll extend an invitation to an in-office consultation. We will also email you (or mail, depending on your preference) an short form for you to complete that gives us some basic information for us to work with at the consultation. At the in-office consultation, your attorney will hear all of the facts, review your documents, ask and answer questions, and discuss with you the process and your options.
What other information will I eventually need?
You will need copies of your tax records to obtain necessary information for your petition. This would include returns or if you do not have returns, transcripts from the IRS and the Massachusetts Department of Revenue. You will require an appraisal of your real estate or any other assets you have as well as copies of bank statements, including canceled checks. At the in-office consultation, you will be given a list of all documents that are required for proper planning of the bankruptcy case.
Why do I need a lawyer? Isn’t just paperwork?
There are document preparation services that will prepare the documents necessary for a bankruptcy filing for a lesser cost than what you would pay an attorney. However, they are forbidden by law to give you legal advice. The passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, imposed additional requirements on debtors that if not met can result in the case being dismissed. There are other duties debtors have, including disclosing important real estate documentation, income information, as examples. Perhaps most importantly, only an attorney can let you know what issues you can expect in your particular case, and how you can prepare for them.
It’s important to remember that bankruptcy is a choice and the decision to file is yours. But your decision should be an informed one. We will be sure that you get all of the facts, learn about the issues that could affect you so that your decision is an informed one.
If you are thinking about personal bankruptcy, please contact us.