One of the harder concepts for first time filers to grasp in Chapter 7 bankruptcy cases is the difference between a bankruptcy discharge and a bankruptcy close. Filing a bankruptcy is a process that has a beginning and an ending. Officially, a bankruptcy has not completely ended until the bankruptcy is officially closed by the bankruptcy court. This concept becomes very important when you have an asset case in a Chapter 7.
Since most Chapter 7 bankruptcies are no asset cases, the significance in the issue of the differences between discharging and closing a case rarely come up. In no asset Chapter 7 cases, the discharge is the primary event a filing debtor should be concerned with because it is the date a debtor can officially receive forgiveness of his unsecured debts, and it is the date the debtor can claim legally ownership back of his exempt assets. Officially, the trustee has abandoned all of the scheduled assets of the bankruptcy estate back to the debtor when he or she has filed the Report of No Distribution. This usually occurs within 60 days from the time of the 341 Creditor’s Meeting.
When you have an asset case in a Chapter 7, the closing of the bankruptcy becomes the most important event. The purpose of a Chapter 7 bankruptcy is for the bankruptcy court to take your non-exempt assets, liquidate them, and divide the proceeds up to pay your unsecured debts to creditors that have made official claims to the property. Many times, creditors do not make the claims necessary, and when they don’t, any assets remaining will go back to the filing debtor. Filing debtors must keep the assets as property of the bankruptcy estate until the assets have been officially abandoned.
The case trustee must submit to the US Trustee a Final Report, Distribution of the Estate Dividends, and a final account of Certification the Estate has been Fully Administered and Applications to be Discharged. The Final Report is normally due 60 days after the 341 meeting; the Distribution of Estate Dividends normally takes place within 30 days after the entry of the final order on compensation and expenses; and the Certification the Estate has been Fully Administered and Applications to be Discharged usually occurs within 125 days after the entry of the order of court allowing compensation and expenses. Therefore, all of these actions between the case trustee and US Trustee can technically take up to 215 days to complete, but exactly how long these processes take depends on how busy the bankruptcy court and trustees are.
Upon approval, the US Trustee will file the Certification the Estates has been Fully Administered and Applications to be Discharged with the bankruptcy court clerk. If within 30 days of that filing no objection has been filed by the United States Trustee or by a party in interest, the court shall enter an Order closing the case pursuant to 11 U.S.C. section 350 and FRBP 5009.
A Chapter 7 bankruptcy is not officially closed until you receive the Order closing the case. Understanding when a bankruptcy closes will only make a difference to you if you are waiting on what to do with assets you still currently possess.
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