Chapter 7 Bankruptcy Process in Maryland and DC

Information Provided by a Maryland and Washington DC Chapter 7 Lawyer

Filing for Chapter 7 bankruptcy consists of a supervised liquidation process, during which time a court-appointed trustee sells a debtor’s assets and distributes the sale proceeds to creditors in full satisfaction of any debts owed. Chapter 7 bankruptcies are the most common form of bankruptcy among consumers. The most common causes for consumer bankruptcy include:

• Unemployment
• Divorce
• Large medical expenses or other unexpected expenses
• Over-extended credit

Partnerships, sole proprietorships, and corporations are also eligible to file for Chapter 7 bankruptcy. However, this form of bankruptcy is less common amongst business entities because, following liquidation, the business must dissolve. Many businesses wishing simply to reorganize debt obligations while continuing operations often file for Chapter 11 bankruptcy instead.

While your level of debt may tempt you to file for bankruptcy, there are negative aspects to filing for bankruptcy, such as a decreased credit score and difficulty obtaining loans in the future, that you must consider when making the decision whether to claim bankruptcy. Filing for Chapter 7 bankruptcy is often appropriate in circumstances where the debtor:

• Earns less than the median income for his or her geographical region
• Does not have a steady flow of income
• Has very little non-exempt assets
• Owes a large amount of debt that cannot feasibly be repaid within a reasonable period of time

If you are considering filing for bankruptcy, it is important that you fully understand your options, as well as the bankruptcy process. You should retain a Washington DC and Maryland Chapter 7 attorney who can explain the positive and negative aspects of each form of bankruptcy and assist you in deciding whether bankruptcy is the best option for your unique circumstances. For more information on alternatives to Chapter 7 bankruptcy, see “Alternatives to Chapter 7 Bankruptcy.”

Determining Chapter 7 Eligibility

Before filing for Chapter 7 bankruptcy, you must be aware of the eligibility requirements. Such requirements include:

• Residence, domicile, place of business, or property owned in the United States
• No prior Chapter 7 discharge within the past eight years
• No prior bankruptcy filing dismissed for cause within the past 180 days
• It must not be fundamentally unfair to grant the debtor relief under Chapter 7

In addition to these requirements, it must not be a “substantial abuse” of Chapter 7 to grant the debtor bankruptcy relief. In determining whether a debtor qualifies, bankruptcy courts apply a “means test” to determine whether they meet the monetary requirements for bankruptcy. If a debtor's income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Filing for Chapter 7 Bankruptcy

The first step in filing Chapter 7 is to fill out an official petition with the bankruptcy court. You will also need to send them your schedules and a statement of your financial affairs. The court will also need a list of your creditors, debts owed and current assets.

Next, any property that is not exempt will be seized by the court. The money obtained from your assets will go toward the proceedings and creditors. Any extra money that has been earned (if all debt has been paid) is yours to keep.

Appointment of a Trustee

After the petition is filed, the court appoints a trustee and the bankruptcy clerk provides notice of the bankruptcy proceedings to all creditors provided by the debtor. The trustee is responsible for administering the case and liquidating the debtor’s non-exempt assets to pay off any debts owed. The trustee has a duty to maximize the money paid to the debtor’s unsecured creditors by selling all non-exempt property at fair market value. The trustee has the power to recover money or property under the trustee’s “avoiding powers.” These powers enable the trustee to:

• Set aside preferential payments to creditors made within the 90 days before filing the bankruptcy petition
• Disregard security interests that were not properly perfected under state law when the petition was filed
• Pursue claims, such as fraudulent conveyance suits, as permitted under state law

In some cases, there are no assets for a trustee to liquidate because all of the debtor’s assets qualify as exempt property. In such instances, the trustee may exercise the trustee’s avoiding powers, or the trustee may simply file a “no asset” report with the court and any unsecured debts will be forgiven with no distribution to the creditors.

Meeting of the Creditors

Twenty to forty days after the debtor files the petition for bankruptcy, the trustee must hold a meeting of the creditors. During this meeting, the debtor must appear and answer, under oath, any questions regarding his or her assets and liabilities. Following the meeting of the creditors, all non-exempt assets are under the control of the trustee to sell as he sees fit.

Unsecured creditors have 90 days after the meeting of the creditors to file their claims with the court. However, if the case is a no asset case, creditors do not typically file their claims because there will be no distribution. If there are non-exempt assets, the trustee will distribute sale proceeds according to the six classes of claims detailed under §726 of the Bankruptcy Code. Under this scheme, each class of creditors must be paid in full before the next lower class is paid.

Reaffirmation

If a debtor owns secured property, he is expected to either return the property or reaffirm the debt. In a reaffirmation agreement, the parties agree that the debtor will repay all or part of an otherwise dischargeable debt in exchange for the creditor’s promise that he will not repossess the property. If, however, the debtor fails to comply with the repayment terms, the creditor may repossess the property. To be effective, a reaffirmation agreement must be signed by the debtor and filed with the court prior to discharge.

Discharge of Debt

Creditors and the trustee have 60 days after the creditors’ meeting to challenge the debtor’s right to discharge. A court may refuse discharge if the debtor did not produce financial records, failed to explain a loss of assets, committed perjury during the meeting of the creditors, fraudulently conveyed property, did not complete the required financial management course, or failed to comply with any other court order. If no such challenges are made, the debt is discharged within four to six months of filing the petition. However, certain debts, such as student loans, tax deficiencies, government fines, and criminal fines, are not dischargeable in Chapter 7 bankruptcy. For more about the discharge of debt, see “Discharge from Chapter 7 Bankruptcy.”

Conclusion

Bankruptcy can be a very complicated and frustrating process. If you are facing the possibility of bankruptcy proceedings, it is important that you contact a qualified Maryland Chapter 7 attorney to assist you throughout the process. Maryland and Washington DC foreclosure attorney Kevin D. Judd is experienced in both Maryland and Washington DC bankruptcy proceedings. He has worked on bankruptcy cases for the citizens of Washington DC and Maryland since 1994 and is qualified to answer any questions you may have. Contact Maryland and Washington DC Chapter 7 lawyer Kevin D. Judd today for assistance with your financial situation.

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Free initial phone consultation. Located near the Navy Memorial/Metro Station.