Basics on the Chapter 7 Bankruptcy Process

 

There is always a lot of questions asked about the chapter 7 bankruptcy process, especially from new filers. Since bankruptcy law can become very complicated, this article is an attempt to deal with the simplest basics on the chapter 7 bankruptcy process.

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U.S. Bankruptcy Court for the Northern District of Florida. (Photo credit: Wikipedia)

Qualifying to File in the Chapter 7 Bankruptcy Process

Bankruptcy law is primarily covered by federal law which supersedes any state law when there is a direct conflict. State bankruptcy laws are available to allow states to help the bankruptcy process through the detailed particulars of filing for bankruptcy protection.

State bankruptcy laws usually deal with state exemptions allowed in any bankruptcy filing and when other state laws may conflict with the federal laws of bankruptcy. Examples of the latter would be conflicts in situations involving divorce and/or child support.

Regardless of what state you live in, in order to qualify to enter the chapter 7 bankruptcy process, you must either pass the federal means test or make at or below the median income for the same size family in your state. The means test was introduced in the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act to make it harder for people to abuse the bankruptcy process through serial filings.

Filing an Application in the Chapter 7 Bankruptcy Process

Once you determine you are eligible to file for a chapter 7 bankruptcy, the process requires you to fill out and submit federal bankruptcy forms to your local district bankruptcy court along with paying the filing fees. The forms filed will normally include: listing all your assets and their values; listing the assets you think are exempt from liquidation; listing all your creditors and how much you currently owe them; providing a brief history of your current income and expenses; and proof you either passed the means test or at or below median income. Depending on your particular situation, there may be other forms to file.

Between Filing and Discharge in the Chapter 7 Bankruptcy Process

Once a panel trustee receives the case, he or she will determine whether or not you are an asset or no asset case. Most chapter 7 bankruptcies are no asset cases and are the simplest and quickest way to file for bankruptcy protection. All your debts not reaffirmed in a chapter 7 bankruptcy are discharged by the bankruptcy court if you do not have any qualifying assets to liquidate and distribute amongst your creditors.

Unless you have special permission from the bankruptcy court, the 341 Meeting is required for you to attend. The 341 meeting is a meeting between you and the creditors where they are given the opportunity to ask you questions or challenge the bankruptcy. The 341 meeting is normally held somewhere between 30 and 60 days from the date you file.

All listed creditors are given a certain time frame to make claims for any distributed funds from liquidation of non-exempt assets. When this time frame is up, the trustee will formally discharge the remaining debts.

After Discharge in the Chapter 7 Bankruptcy Process

Once the trustee has formally discharged all unclaimed debts and debts not satisfied by distribution, the trustee can liquidate any non-exempt assets and distribute the funds to unsecured debtors by priority status as determined by bankruptcy law.

The process to administer the distribution of the assets can be a long process, depending on the number and type of assets to liquidate. Once the date for filing of creditor claims has passed, the panel trustee reviews the claims, and with the supervision of the U.S. Trustee, files a Notice of Proposed Distribution that the creditors will be given an opportunity to object to. If there are no objections from the creditors, the panel trustee will then distribute any funds to creditors according to their claims and priority status.

After waiting to make sure all the distribution checks have cleared the bank, and after paying himself the amount due him or her by bankruptcy law, the panel trustee will send the U.S. Trustee official documents indicating his actions and recommending closing the case.

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