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Bankruptcy 101: Complete Guide to Filing Chapter 7 Bankruptcy By Grant Phillips Law
What is bankruptcy?
What is the intent of bankruptcy?
What does it mean to declare bankruptcy?
Who created the bankruptcy laws?
Do states have any say?
Do federal exemptions exist?
Does bankruptcy give a fresh start?
Who may file bankruptcy?
What are the different chapters in bankruptcy?
What happens after my case is filed?
When does a bankruptcy end?
When can I expect a discharge?
How will my creditors know about my discharge?
What is a discharge?
How long does a bankruptcy stay on my credit reports?
How long does a late charge remain on my credit report?
What fees are involved in a typical chapter 7 bankruptcy
What is a trustee?
Will I know which trustee is assigned to my case?
What does a trustee do?
Who protects the claims and interests of the creditors?
What is a 341 creditors meeting?
Am I required to go to the 341 meeting?
What else happens at the 341 meeting?
Will I be alone at the 341 meeting?
How long is the 341 meeting & where is it held?
What do I need to bring to the 341 meeting?
Sample trustee questions at 341 meeting
What debts cannot be discharged in bankruptcy
Does a debtor have a right to a discharge in chapter 7?
Does a debtor have a right to a discharge in chapter 13?
Can a discharge be revoked once obtained?
May a debtor pay a discharged debt after bankruptcy?
Can a creditor contact me after discharge?
Keep a log of creditor contact
Is my employment safe if I file for bankruptcy?
What is a debt settlement attorney?
How is this different from a bankruptcy attorney?
Can I file bankruptcy without an attorney?
Can I file for a corporation without an attorney?
Why hire an attorney over a debt settlement company?
WHAT IS BANKRUPTCY?
Bankruptcy is the legal process by which people or corporations, who cannot repay their debts to creditors, may seek relief from some or all of their debts through the use of certain laws. This guide will focus on individual filers. Generally, an individual filer initiates their bankruptcy by filing specific court papers with the local bankruptcy court. Did you know – the word bankruptcy is derived from Italian banca rotta, meaning “broken bench.”
WHAT IS THE INTENT OF BANKRUPTCY?
The intent of Congress in enacting the Bankruptcy Code of Laws is to: (a) Provide a legal solution to reduce or eliminate debt, (b) control the actions that creditors can take against a debtor and (c) provide a fresh financial start to the debtor.
WHAT DOES IT MEAN TO DECLARE BANKRUPTCY?
To file bankruptcy and declare bankruptcy is the same thing. Bankruptcy is a legal process created to eliminate debt and provide a fresh start to debtors. The process formally and legally begins with the official filing of the necessary paperwork with the local bankruptcy court. Once filed a case number will be generated. At this time the debtor has formally declared bankruptcy. They have put their creditors, the court and the world on notice that they have filed, declared or lodged a bankruptcy filing. According to the dictionary, declare means “to make known formally.” Thus, when filed, a bankruptcy is “known” and the debtor has declared bankruptcy.
WHO CREATED THE BANKRUPTCY LAWS?
In the United States, bankruptcy is under Federal Jurisdiction. This means that Congress create bankruptcy law. It also means that bankruptcy laws are uniform throughout the United States. In other words, but for certain nuances, a bankruptcy filed in New York, California or Florida have the same process and laws.
DO STATES HAVE ANY SAY?
Yes, when it comes to choosing exemptions for certain property and assets belonging to the debtor, we look to State law. Exemptions protect some property and assets from being taken from the debtor in bankruptcy.
An example of an exemption is the Homestead Exemption. Here the States provide protection for a debtor’s primary residence that has equity. Each State provides an amount of equity the debtor can keep in their primary residence when they file for bankruptcy. This number will vary depending on the State and County where the property is located. Thus, while bankruptcy law is Federal, the States have their exemptions.
DO FEDERAL EXEMPTIONS EXIST?
Federal Law has its own set of exemptions. They can be more or less favorable to a debtor, depending on their assets. Some States allow a debtor to choose between State or Federal exemptions, while others do not. New York is an example of a State that provides a debtor and their attorney with the choice. An experienced attorney will know which exemptions to choose. We will delve into exemptions later in this guide.
DOES BANKRUPTCY GIVE A FRESH START?
Bankruptcy law was created specifically to provide American’s with an opportunity to start over financially. In fact, The Supreme Court of the United States (The highest court in the land) stated in 1934 that the fundamental goal of the federal bankruptcy laws is to give debtors a financial “fresh start” from burdensome debts. The Court stated “[I]t gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt. You will find this seminal writing in the case Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934). Therefore, the right to a fresh financial start is both in the Constitution and as interpreted by the Supreme Court of the United States.
WHO MAY FILE BANKRUPTCY?
Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy. One may even file with just a Green Card. However, individuals who have had a prior bankruptcy case dismissed within the prior 180 days, may not file.
WHAT ARE THE DIFFERENT CHAPTERS IN BANKRUPTCY?
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as “straight bankruptcy” or “liquidation” cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts.
Chapter 9 is only for municipalities and governmental units, such as schools, water districts, and so on.
Chapter 11 is the reorganization chapter available to businesses and individuals who have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a plan of reorganization which must be approved by the court. Due to the expense and complexity of chapter 11, the decision to file a chapter 11 petition should be made in consultation with an attorney.
Chapter 12 offers bankruptcy relief to those who qualify as family farmers or family fishermen.
Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each chapter 13 debtor proposes a repayment plan which must be approved by the court. The amounts set forth in the plan must be paid to the chapter 13 trustee who distributes the funds for a percentage fee. Many debts that cannot be discharged can still be paid over time in a chapter 13 plan. After completion of payments under the plan, chapter 13 debtors receive a discharge of most debts.
WHAT HAPPENS AFTER MY CASE IS FILED?
After a bankruptcy is filed with the court, an imaginary protective bubble is created. We refer to this bubble as the Bankruptcy Stay. It prevents creditors from contacting or otherwise dealing with the debtor during their bankruptcy, allowing the debtor to focus on their filing free of harassment. Also, after filing the court will auto generate and assign a trustee and judge to the case. In a typical Chapter 7 filing, you will never meet the judge.
WHEN DOES A BANKRUPTCY END?
A discharge is the final part of the bankruptcy. It is a paper generated by the bankruptcy court and sent to the debtor and the debtor’s attorney. It acknowledges that the bankruptcy has been approved. This means that the debts listed in the filing have been discharged. The discharge releases the debtor from ever having to pay those listed debts. It also acts as a permanent court order, prohibiting the former creditors from all collection activity on the discharged debts.
WHEN CAN I EXPECT A DISCHARGE?
Receipt of a discharge depends on the type of bankruptcy filed. The most common forms of personal bankruptcy are Chapter 7 and Chapter 13. In chapter 7 (liquidation), the court usually issues a discharge 3 to 4 months after the filing. In Chapter 13 (consolidation/reorganization), it is issued after 2 to 5 years. This tutorial will explain Chapter 7, Chapter 13 and their respective differences, in detail below.
HOW WILL MY CREDITORS KNOW ABOUT MY DISCHARGE
The laws of bankruptcy state that the clerk of the bankruptcy court must mail a copy of the order of discharge to all former creditors. The debtor and the debtor’s attorney also receive copies of the discharge order.
WHAT IS A DISCHARGE?
It’s a notice, which is simply a copy of the final order of discharge. The notice informs former creditors generally that the debts once owed to them by the debtor have been discharged (eliminated) and that they should not attempt any further collection. They are even cautioned in the discharge notice that continuing collection efforts could subject them to punishment for violating the discharge order.
HOW LONG DOES A LATE CHARGE REMAIN ON MY CREDIT REPORT?
A late payment, also known as a delinquency, will typically fall off your credit reports seven (7) years from the original delinquency date. For instance: If you had a 30-day late payment reported in June 2019 and bring the account current in July 2019, the late payment would drop off your reports in June 2026.
- Attorney Fee – The cost your attorney will charge you. This fee varies from lawyer to lawyer, however there are certain guidelines and caps that if breached, will be questioned by the Trustee. We will discuss the Trustee below.
- Court Filing Fee – This fee is statutory and fixed across the country. This fee pays for an Index Number and for the court to mail notice of your bankruptcy filing to all you creditors as listed on your creditor matrix. (The Matrix is simply a list or labels of all creditors by name and address)
- Credit Reports – it is imperative that a credit report is obtained from each of the 3 main credit reporting agencies so as to make certain you are finding ALL your creditors. Remember what is listed on Experian for example may not be listed on the Transunion report. Hence, we obtain all 3 reports.
- Tax Filings – one is not able to file a bankruptcy of any sort until all tax filings are up to date. This requirement is not as onerous as it sounds. It simply means there cannot be years where tax filings are still outstanding.
- Credit Counseling & Debtors Education Courses –The bankruptcy code requires that a debtor who files for bankruptcy take a Credit Counseling Course prior to filing – a course done over the phone or online that teaches budgeting and best financial practices – and a Debtors Education Course after filing – again this course can be completed by phone or online. Both of these courses are offered by dozens of formal providers and usually a package for both is about $20. These courses are integral to the debtor’s filing and mandatory in order to file a bankruptcy and receive a discharge.
WHAT IS A TRUSTEE
A Bankruptcy Trustee is usually a bankruptcy lawyer in private practice but who also works per diem (on a case by case basis) for the bankruptcy court. However, the trustee does not have to be a lawyer and many trustees are in fact accountants and the like.
WILL I KNOW WHICH TRUSTEE IS ASSIGNED TO MY CASE?
A trustee is an appointed position and for each court there is a pool of rotating trustees depending on how busy that court is. A debtor has no control over which trustee they will be assigned in their bankruptcy filing. The electronic filing of the bankruptcy case will auto generate the Trustee, Judge and Index Number assigned to the debtors case.
WHAT DOES A TRUSTEE DO?
The main job of the trustee is to manage the debtor’s estate after they file for bankruptcy. This includes making certain the debtor qualifies for the bankruptcy type (7 or 13) they have filed for. The Trustee is also charged with confirming that a debtor is not hiding or failed to list, certain assets. In a Chapter 13 bankruptcy which entails a financial reorganization and consolidation, the Trustee is the person to receive the debtor’s monthly payment. The 13 payment plan last over the course of 2 to 5 years. The Trustee will also review the bankruptcy paperwork (Petition and Schedules) for accuracy and adherence to the law.
WHO PROTECTS THE CLAIMS AND INTERESTS OF THE CREDITORS?
A Trustee is also tasked with representing the creditor’s interests in finding any assets that are not exempt and to distribute such assets amongst the creditors in accordance with their standing based on the law. For example, a priority claim will usurp a non-priority claim, like a mortgage versus credit card lender. Based on this legal hierarchy of creditors, the trustee is also tasked with distributing assets based upon the legal standing of each creditor as designated by the law.
WHAT IS A 341 CREDITORS MEETING?
Another duty of the trustee is to hold a meeting with the debtor and their attorney usually 3 to 4 weeks after the case is filed. This meeting is legally referred to as the 341 Creditors Meeting. This is a meeting for any creditors to object to the bankruptcy should they feel there is an abuse or illegality in the filing.
AM I REQUIRED TO GO TO THE 341 MEETING?
It is unusual for a creditor to show up to a 341 meeting. However, the debtor and their attorney are required to show up. Missing the 341 meeting is grounds for the debtor’s bankruptcy to be dismissed immediately. It is strongly recommended that you keep the date of this meeting, as adjourning is frowned upon by the trustee and is very difficult to obtain.
WHAT ELSE HAPPENS AT THE 341 MEETING?
Even if no creditors show up to this meeting, the debtor will be sworn in by the trustee and then the Trustee will begin recording the meeting and commence asking the debtor several questions about their bankruptcy filing. Examples of actual Trustee questions are listed below.
WILL I BE ALONE AT THE 341 MEETING?
Grant Phillips Law, PLLC not only attends all 341 Meetings with our clients, but also actively prepares them in advance of the 341 Meeting.
HOW LONG IS THE 341 MEETING & WHERE IS IT HELD?
The actual meeting itself is about 5 to 10 minutes and is held in a small room in the District Court building. A 341 Meeting is never held in the Bankruptcy Court and barring creditor objections or suspected fraud, a debtor should not meet the Judge when a Chapter 7 is filed. Grant Phillips Law, PLLC, will have a dedicated and experienced attorney sitting beside you through the entirety of the 341 Meeting.
WHAT DO I NEED TO BRING TO THE 341 MEETING?
It is vital that a debtor bring their actual Social Security Card as well as an official government issued picture identification such as a driver’s license to the 341 Meeting. Without both forms of identification the bankruptcy case may be dismissed by the Trustee.
- “Please provide your picture ID and Social Security Card for Review.”
- “Debtor, did you sign the petition, schedules, statements and related documents and is the signature your own?”
- “Did you read the petition, schedules, statements and related documents before signing them?”
- Are you personally familiar with the information contained in the petition, schedules, statements and related documents?”
- To the best of your knowledge, is the information contained in the petition, schedules, statements and related documents true and correct?”
- “Are there any errors to bring to my attention at this time?”
- “Are all of your assets listed in the bankruptcy filing?”
- “Have you listed all your creditors on the schedules?”
- “Have you previously filed bankruptcy?”
- “What is the address of your current employer?”
- “Is the copy of your tax return you provided, a true and accurate copy and your most recent filed tax return?”
- “Do you have any domestic support obligation?”
- “Have you read the Bankruptcy Information Sheet provided by the United States Trustee?”
- “Do you own or have an interest in any real estate?”
- “When you filed your bankruptcy, did you have any cash on hand?”
- “Does anyone owe you money?”
- “Can you collect that money?”
- “Why have you not collected this money?”
WHAT DEBTS CANNOT BE DISCHARGED IN BANKRUPTCY
Irrespective of what chapter of bankruptcy you file, certain debts are not dischargeable. The most common types of non-dischargeable debts are: certain tax claims, debts the debtor did not include in their bankruptcy filing, debts for child support or alimony, debts for willful and malicious injuries to another person or property, debts to governmental agencies, debts for most government funded educational loans, debts for overpayment of government benefits, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated.
DOES A DEBTOR HAVE A RIGHT TO A DISCHARGE IN CHAPTER 7?
A debtor does not have an absolute right to a discharge. An objection to the debtor’s discharge may be filed by a creditor, by the trustee in the case, or by the U.S. trustee. The U.S. Trustee is a representative of the Department of Justice. Examples of reasons to object include, the debtors failure to provide requested tax documents; failure to complete the course on personal financial management; the transfer or concealment of property with intent to hinder, delay, or defraud creditors; destruction or concealment of financial books or records; perjury and other fraudulent acts; failure to account for the loss of assets. In the event there is an objection to the debtor’s discharge, the matter may likely end up in front of the appointed Judge.
DOES A DEBTOR HAVE A RIGHT TO A DISCHARGE IN CHAPTER 13?
Unlike Chapter 7, creditors in a Chapter 13 do not have standing to object to the discharge of chapter 13 debtor. The time for a Chapter 13 plan to be “attacked” by a creditor is regarding the proposed repayment plan, whereby a creditor can object to a proposed repayment plan. However, they cannot object to the Chapter 13 discharge, once the plan is accepted by the Court and the debtor made all payments in full and on time.
CAN A DISCHARGE BE REVOKED ONCE OBTAINED?
It is worth noting that in both a Chapter 7 and Chapter 13 bankruptcy a discharge can be revoked if later it comes out that there was fraud in the bankruptcy filing. A critical part of any bankruptcy filing, irrespective of chapter, is total and complete financial disclosure. Anything less and a debtor could be liable for fraud, which can translate into a felony.
MAY A DEBTOR PAY A DISCHARGED DEBT AFTER BANRUPTCY?
A debtor who has already received a discharge may nonetheless voluntarily repay any discharged debt, even though it can no longer be legally enforced. An example of such occurrence is a debtor who agrees to repay a debt already discharged, because it is owed to a family member.
CAN A CREDITOR CONTACT ME AFTER DISCHARGE?
The discharge constitutes a permanent legal injunction (stop) prohibiting creditors from taking any action designed to collect a discharged debt. A creditor can be sanctioned by the court for violating the discharge. The normal sanction for violating the discharge injunction is civil contempt, which is often punishable by a fine.
KEEP A LOG OF CREDITOR CONTACT
We advise our clients to keep a very simple log in the event any creditor attempts to contact them after the discharge. This way, one has documented events, making it easier to stop.
IS MY EMPLOYMENT SAFE IF I FILE FOR BANKRUPTCY?
Yes, it is illegal for an employer to discriminate or retaliate against a debtor who was in bankruptcy or who got certain debts discharged in bankruptcy. This applies to both the private sector as well as governmental jobs.
WHAT IS A DEBT SETTLEMENT ATTORNEY?
A Debt Settlement Lawyer is an attorney specializing in helping a client settle their debt(s). It usually involves credit that is unsecured – think credit cards or medical bills or for a business, a Merchant Cash Advance Loan or Hard Money Loan. The Debt Settlement Attorney will negotiate with these creditors on behalf of the client, to settle the debt for less than what is owed. These settlements can often settle for 30% to 70% less, than what is actually owed.
HOW IS THIS DIFFERENT FROM A BANKRUPTCY ATTORNEY?
There is no difference. A debt relief attorney will specialize in debt relief. Relief can come in the form of a bankruptcy or a debt settlement. Each case and its respective circumstances will dictate which approach is best. A debt settlement may be a repayment plan for less than what is owed, but it is still a form of repayment. A bankruptcy will eliminate the unsecured debt like credit cards entirely. Meaning there is no repayment. This applies in a Chapter 7 bankruptcy. There is however a repayment plan set up in a Chapter 13. We discuss this in detail in the menu item labelled Chapter 13.
CAN I FILE BANKRUPTCY WITHOUT AN ATTORNEY?
Current law permits individuals to file their own cases and to represent their own interests in bankruptcy proceedings. However, it may not be wise to do so. Any bankruptcy case can become a complicated matter requiring both knowledge of the law and experience before the court to successfully complete. In order to fill out the forms required to file a case, you will need to know (among other things) the differences between the types of bankruptcies which can be filed, the types of exemptions permitted and the differences between secured and unsecured debts.
As your case progresses, many other areas of law and knowledge may be involved. Decisions made without an understanding of bankruptcy law can have serious consequences including the loss of property and legal rights.
CAN I FILE FOR A CORPORATION WITHOUT AN ATTORNEY?
Only an attorney may file a bankruptcy for a partnership or corporation. Even if an individual is the sole shareholder or the managing partner, that person may not represent the corporation or partnership before the bankruptcy court.
WHY HIRE AN ATTORNEY OVER A DEBT SETTLEMENT COMPANY?
While a debt settlement company may try to settle unsecured debt like credit cards, they cannot, by law, deal with secured debt like a mortgage or a financed car. Moreover, a creditor is not obligated to speak with the debt settlement company and thus what they can do is very limited. In order to deal with ALL your debt in one comprehensive fashion, you will want to work with a debt relief and bankruptcy lawyer. Only an attorney can include both secured and unsecured debt in any settlement and only an attorney holds the trump card of bankruptcy. We refer you to our blog and an article there titled “TACKLE ALL YOUR DEBT WITH A DEBT RELIEF ATTORNEY” See: https://grantphillipslaw.com/blog