If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to preserve its security interest or lien, there may be other reasons to file a claim.
A creditor in a chapter 7 case who has a lien on the debtor's property should consult an attorney for advice. Commencement of a bankruptcy case creates an "estate. It consists of all legal or equitable interests of the debtor in property as of the commencement of the case, including property owned or held by another person if the debtor has an interest in the property.
Generally speaking, the debtor's creditors are paid from nonexempt property of the estate. The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt assets in a manner that maximizes the return to the debtor's unsecured creditors.
The trustee accomplishes this by selling the debtor's property if it is free and clear of liens as long as the property is not exempt or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property. The trustee may also attempt to recover money or property under the trustee's "avoiding powers.
In addition, if the debtor is a business, the bankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will benefit creditors and enhance the liquidation of the estate.
Section of the Bankruptcy Code governs the distribution of the property of the estate. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not particularly interested in the trustee's disposition of the estate assets, except with respect to the payment of those debts which for some reason are not dischargeable in the bankruptcy case.
The individual debtor's primary concerns in a chapter 7 case are to retain exempt property and to receive a discharge that covers as many debts as possible. A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult competent legal counsel before filing to discuss the scope of the discharge.
Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case — generally, 60 to 90 days after the date first set for the meeting of creditors. The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party.
Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.
Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property such as an automobile , he or she may decide to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy.
In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered.
The debtor must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 U. Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor's personal liability for that debt will not be discharged in the bankruptcy.
The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement.
Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement. If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal effect and consequences of the agreement, including a default under the agreement.
The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor's dependants. The Bankruptcy Code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. Or, if money is really tight, you can submit a form asking for the fee to be waived.
When you print out your bankruptcy forms, keep in mind that the court is pickier than a college English professor. But some courts want as many as four copies. Go ahead and take a seat while the clerk processes your case. Then the clerk will give you some important info that you want to hang on to:. At this point, your bankruptcy case is officially filed.
There are some other key steps you have to take before your debts are gone. A bankruptcy trustee is someone appointed by the court to handle your case. Your trustee will ask you to send them certain documents, like tax returns, pay stubs and bank statements. So, pay close attention to your mail and make sure you do everything the trustee tells you if you want your debts erased. So be honest and let the trustee know if there are any changes you need to make to your bankruptcy file.
The good news is, this meeting can be pretty short and simple. Since you have to sell most of your stuff to get your debts erased in a Chapter 7, your creditors are more likely to show up to make sure they get their piece of the pie. Credit card companies may also join the party to ask about your recent purchases.
Because most unsecured debt is erased in a Chapter 7, they want to know if you ran up a bill on purpose—just to get it cleared by filing for bankruptcy.
In a Chapter 13 bankruptcy, the meeting is when your trustee ranks your debts to decide which creditor should get paid first. Your role in the meeting may be small, but this is the time for you to ask any questions you have about your case. The goal of the debtor education course is to teach you how to make smarter money choices moving forward.
The automatic stay now protects you from all debt collectors. The Chapter 7 trustee is an official appointed by the court to oversee your case and liquidate, or sell, nonexempt property for the benefit of your creditors. Not all types of bankruptcy require the involvement of a bankruptcy trustee, but both Chapter 7 and Chapter 13 cases have one. Pay attention to mail you receive from the trustee after filing your case.
The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. After filing your bankruptcy forms, you will need to complete a Debtor Education Course from an approved credit counseling agency. The purpose of the course is to educate you on making smart financial decisions going forward but does not provide legal advice about the bankruptcy process.
Your meeting, or meeting of creditors , will take place about a month after your bankruptcy case is filed. Due to the COVID pandemic, all meetings are held either by video conference or via telephone until at least October. The main purpose of the meeting is for the case trustee to verify your identity and ask you certain standard questions and most last only about 5 minutes.
Your creditors are allowed to attend and ask you questions about your financial situation, but they almost never do. You should also bring a copy of your bankruptcy forms to the meeting, along with your last 60 days of pay stubs, your recent bank statements, and any other documents that your trustee has asked for. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. You have to complete and sign the agreement and return it to the bank within 45 days from your meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum. Upsolve Community Member How difficult is it to do my own chapter 7? Chapter 13 bankruptcy is another type of bankruptcy available to consumers.
The main difference to Chapter 7 is that you pay back some of your debts through the Chapter 13 trustee. This is determined by the means test analysis, your actual income and expenses and the terms of your repayment plan.
Since Chapter 13 payment plans can be pretty complicated, anyone considering a Chapter 13 filing should talk to a bankruptcy attorney first. Most American consumers get their fresh start by filing Chapter 7 and eliminating credit card debt, medical debts, and most other unsecured debt. Filing for bankruptcy takes some preparation.
Hiring a good bankruptcy attorney is one way to file. But if you can't afford the attorney fees to hire one and you need a fresh start, Upsolve may be able to help. If you're eligible , our free web app will walk you through the process and help you prepare your forms for filing with the court. Attorney Andrea Wimmer. Grow Your Legal Practice. Meet the Editors. Filing a Chapter 7 Bankruptcy: Basic Steps.
When filing for Chapter 7 bankruptcy, your case should move forward predictably. Here's a summary of what's involved in a typical Chapter 7 bankruptcy. Analyze your debt Some debts, such as child support obligations, most student loan balances, and recent tax debt, aren't dischargeable wiped out in Chapter 7 bankruptcy.
Determine your property exemptions Every state has exemption laws, which dictate what types of property or, in some cases, how much equity in a particular type of property you are entitled to keep if you file for Chapter 7 bankruptcy.
Make sure you are eligible Most people must take and pass the means test before qualifying for a discharge in Chapter 7 bankruptcy excluded individuals include those with primarily business debt and some military personnel.
Redeem or reaffirm secured debts If you pledged property as collateral for a loan, you'll need to continue to pay the creditor if you want to keep the property. Fill out the bankruptcy forms You'll complete a few dozen pages of forms, in which you tell the court about all of your property, debts, income, expenses, and prior transactions. Take a credit counseling course Individuals who file for bankruptcy must complete a course before filing for bankruptcy, or, in unusual cases, shortly after that.
File the forms Filing your petition the main bankruptcy form, schedules, and other forms officially starts your case. Pay the filing fee or request a fee waiver You'll pay a filing fee when you file your forms. Submit documents to the bankruptcy trustee You'll need to turn over documents that prove the accuracy of the information provided in your bankruptcy forms. Go to a meeting In most cases, you'll need to go to court only once for a short meeting with the trustee and perhaps a creditor or two, although it's unusual for creditors to appear.
File objections or motions if needed If you dispute a creditor's claim against you or you want to eliminate certain liens, you'll need to address these matters before your bankruptcy case is closed if you forget to handle a lien, most courts will allow you to reopen the case at a later date. Wind up your secured debts When you filed your bankruptcy forms, you'll complete a form in which you stated how you intend to handle your secured debts. Complete a debtor education course After you file your paperwork, you'll need to complete the second course, called a debtor education course, before you'll receive a discharge the order that wipes out your debt.
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