Chapter 7 Bankruptcy Explained by Our Attorney
Filing for Chapter 7 bankruptcy consists of a supervised liquidation process. During this time, a court-appointed trustee sells a debtor’s assets and distributes the sale proceeds to creditors. This is in full satisfaction of any debts owed.
Determining Chapter 7 Eligibility
Before filing for Chapter 7 bankruptcy, you must understand eligibility requirements. Such requirements include:
- Residence, domicile, place of business or property owned in the United States
- No prior Chapter 7 bankruptcy 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 “bankruptcy means test”. This test determines whether they meet the monetary requirements for bankruptcy. If a debtor’s income is in excess of certain thresholds, then the debtor may not be eligible for Chapter 7 relief.
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. Additionally, the court will need a list of your creditors, debts owed and current assets.
Next, the court will seize any property that is not exempt. The money obtained from your assets will go toward the proceedings and creditors. Any extra money 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. Then, 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. He/she 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
Sometimes 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. In that case, any unsecured debts will be forgiven with no distribution to 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, the trustee controls all non-exempt assets and he/she can sell them as he/she 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.
What is A Reaffirmation Agreement?
If a debtor owns secured property, he should 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, the creditor promises 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, the debtor must sign a reaffirmation agreement and file it with the court prior to discharge.
- Committed to the Community
- Obtain A Fresh Start
- Fair & Reasonable Rates
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, then 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 “Chapter 7 Discharge”.
We Can Explain Chapter 7 Bankruptcy to You
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 MD or Washington DC Chapter 7 attorney to assist you throughout the process. Attorney Kevin D. Judd has experience in both Maryland and Washington DC bankruptcy proceedings. He has helped clients since since 1994. Please contact our Chapter 7 bankruptcy lawyer now for a free consultation to discuss your financial situation