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1. What is a chapter 7 bankruptcy case and how does it
work?
A
chapter 7 bankruptcy case is a proceeding under federal
law in which the debtor seeks relief under chapter 7 of
the Bankruptcy Code. Chapter 7 is that part (or chapter)
of the Bankruptcy Code that deals with liquidation. The
Bankruptcy Code is a federal law that deals with
bankruptcy. A person who files a chapter 7 case is
called a debtor. In a chapter 7 case, the debtor must
turn his or her nonexempt property, if any exists, over
to a trustee, who then converts the property to cash and
pays the debtor’s creditors. In return, the debtor
receives a chapter 7 discharge, if he or she pays the
filing fee, is eligible for the discharge, and obeys the
orders and rules of the bankruptcy court.
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2. What is a chapter 7 discharge?
It
is a court order releasing a debtor from all of his or
her dischargeable debts and ordering the creditors not
to attempt to collect them from the debtor. A debt that
is discharged is a debt that the debtor is released from
and does not have to pay.
3. How does a person obtain a chapter 7 discharge?
A
chapter 7 discharge is obtained by filing and
maintaining a chapter 7 bankruptcy case and being
eligible for a chapter 7 discharge. However, not all
debts are discharged by a chapter 7 discharge. Certain
types of debts are by law not dischargeable under
chapter 7 and debts of this type will not be discharged
even if the debtor receives a chapter 7 discharge.
4. Who is permitted to file and maintain a chapter 7
case?
Any
person who resides in, does business in, or has property
in the United States is permitted to file a chapter 7
bankruptcy case except a person who has intentionally
dismissed a prior bankruptcy case within the last 180
days. To be permitted to maintain a chapter 7 bankruptcy
case a person must qualify for chapter 7 relief under a
process called means testing.
5. What is means testing?
Means testing is a method of determining a person’s
eligibility to maintain a chapter 7 case. Under this
method a person whose annualized current monthly income
from all sources exceeds the median annual income, as
reported by the U.S. Census Bureau, for the person’s
state and family size, must show that he or she
is not able to pay a minimum of $100 per month for 60
months to his or her unsecured creditors from his or her
disposable monthly income in order to be eligible to
maintain a chapter 7 case. Disposable monthly income is
a person’s current monthly income from all sources less
the person’s permitted current monthly expenses. The
chapter 7 case of a person whose disposable monthly
income is such that he or she is deemed to be able to
pay $100 per month or more to unsecured creditors for 60
months will be dismissed or converted to chapter 13
unless special circumstances exist.
6. How is means testing carried out?
Every person who files a chapter 7 case must file a
document called Statement of Current Monthly Income and
Means Test Calculation. This document, when completed
and filed, shows the person’s current monthly income and
the current monthly expenses that a person is allowed to
claim. The person may also be questioned about his or
her income and expenses at the meeting of creditors.
From these sources a person’s current monthly disposable
income is calculated. This figure is then used to
determine the amount of the monthly payment that the
person can afford to make to his or her unsecured
creditors. If the amount of this monthly payment is
above a certain figure (usually $100), the person will
almost always be disqualified from maintaining a chapter
7 case and the case will be dismissed or, with the
person’s consent, converted to chapter 13.
7. How is it decided whether a person is ineligible for
chapter 7 under means testing?
The
Statement of Current Monthly Income and Means Test
Calculation filed by the person will initially show
whether the person is able to make monthly payments to
unsecured creditors in the amount required for
ineligibility. If so, the clerk of the bankruptcy court
will send a notice to all creditors that a presumption
of abuse has arisen in the case. The United States
trustee then has until 10 days after the meeting of
creditors to file a statement as to whether a
presumption of abuse exists in the case. Then the United
States trustee or any creditor can move to dismiss the
case. The bankruptcy judge will ultimately decide
whether the case should be dismissed.
8. What is a presumption of abuse and how does it affect
the case?
When
a chapter 7 case is filed by an ineligible person, under
bankruptcy terminology that person is said to have
abused the chapter 7 laws. When a person whose current
monthly disposable income is such that he or she can
afford to make monthly payments to unsecured creditors
in the required amount, a presumption of abuse is said
to arise in the case. If a presumption of abuse arises
in a case, the case will be dismissed or converted to
chapter 13 unless the person filing the case can prove
the existence of special circumstances, such as a
serious medical condition.
9. Who is eligible for a chapter 7 discharge?
Any
person who is qualified to file and maintain a chapter 7
case is eligible for a chapter 7 discharge except the
following:
(1) A
person who has been granted a discharge in a chapter 7
case that was filed within the last 8 years.
(2) A
person who has been granted a discharge in a chapter 13
case that was filed within the last 6 years, unless 70
percent or more of the debtor’s unsecured claims were
paid off in the chapter 13 case.
(3) A
person who files and obtains court approval of a written
waiver of discharge in the chapter 7 case.
(4) A
person who conceals, transfers, or destroys his or her
property with the intent to defraud his or her creditors
or the trustee in the chapter 7 case.
(5) A
person who conceals, destroys, or falsifies records of
his or her financial condition or business transactions.
(6) A
person who makes false statements or claims in the
chapter 7 case, or who withholds recorded
information from the trustee.
(7) A
person who fails to satisfactorily explain any loss or
deficiency of his or her assets.
(8) A
person who refuses to answer questions or obey orders of
the bankruptcy court, either in his or her bankruptcy
case or in the bankruptcy case of a relative, business
associate, or corporation with which he or she is
associated.
(9) A
person who, after filing the case, fails to complete an
instructional course on personal financial management.
(10)
A person who has been convicted of bankruptcy
fraud or who owes a debt arising from a securities law
violation.
10. What types of debts are not dischargeable in a
chapter 7 case?
All
debts of any type or amount, including out-of-state
debts, are dischargeable in a chapter 7 case except for
the types of debts that are by law nondischargeable in a
chapter 7 case. The following is a list of the most
common types of debts that are not dischargeable in a
chapter 7 case:
(1)
Most tax debts and debts that were incurred to pay
nondischargeable federal tax debts.
(2)
Debts for obtaining money, property, services, or credit
by means of false pretenses, fraud, or a false financial
statement, if the creditor files a complaint in the
bankruptcy case.
(3)
Debts not listed on the debtor’s chapter 7 forms, unless
the creditor knew of the bankruptcy case in time to file
a claim.
(4)
Debts for fraud, embezzlement, or larceny, if the
creditor files a complaint in the bankruptcy case.
(5)
Debts for domestic support obligations, which include
debts for alimony, maintenance, or support, and certain
other divorce-related debts, including property
settlement debts.
(6)
Debts for intentional or malicious injury to the person
or property of another, if the creditor files a
complaint in the bankruptcy case.
(7)
Debts for certain fines or penalties.
(8)
Debts for most educational benefits and student loans,
unless a court finds that not discharging the debt would
impose an undue hardship on the debtor and his or her
dependents.
(9)
Debts for personal injury or death caused by the
debtor’s operation of a motor vehicle, vessel or
aircraft while intoxicated.
(10)
Debts that were or could have been listed in a previous
bankruptcy case of the debtor in which the debtor did
not receive a discharge.
11. Who should not file a Chapter 7 case?
A person who is not eligible for a chapter 7 discharge
should not file a chapter 7 case. Also, in most
instances a person who has substantial debts that are
not dischargeable under chapter 7 should not file a
chapter 7 case. In addition, it is not usually advisable
for a person with disposable income sufficient to make
the required minimum payments to unsecured creditors to
file a chapter 7 case, because a presumption of abuse
will arise and the case will probably be dismissed or
converted to chapter 13.
12. Is there anything that a person must do before a
chapter 7 case can be filed?
Yes. A person is not permitted to file a chapter 7 case
unless he or she has, during the 180-day period prior to
filing, received from an approved nonprofit budget and
credit counseling agency an individual or group briefing
that outlined the opportunities for available credit
counseling and assisted the person in performing a
budget analysis. This briefing may be conducted by
telephone or on the internet, if desired, and must be
paid for by the person. When the chapter 7 case is
filed, a certificate from the agency describing the
services provided to the person must be filed with the
court. A copy of any debt repayment plan prepared for
the person by the agency must also be filed with the
court. In emergency situations, the required credit
counseling may be conducted after the case is filed.
13. How much is the filing fee in a chapter 7
case and when must it be paid?
The filing fee is $274 for either a single or a joint
case. The filing fee is payable when the case is filed
when you have hired an attorney to represent you in the
case.
14. Where should a chapter 7 case be filed?
A
chapter 7 case is filed in the office of the clerk of
the bankruptcy court in the district where the debtor
has resided or maintained a principal place of business
for the greater portion of the last 180 days. The
bankruptcy court is a federal court and is a unit of the
United States district court.
15. May a husband and wife file jointly under chapter 7?
Yes.
A husband and wife may file a joint case under chapter
7. If a joint chapter 7 case is filed, only one set of
bankruptcy forms is needed and only one filing fee is
charged. However, both husband and wife must receive the
required credit counseling before the case is filed and
both must complete the required financial management
course after the case is filed.
16. Under what circumstances should a joint chapter 7
case be filed?
A
husband and wife should file a joint chapter 7 case if
both of them are liable for one or more significant
dischargeable debts. If both spouses are liable for a
substantial debt and only one spouse files under chapter
7. the creditor may later attempt to collect the debt
from the nonfiling spouse, even if he or she has no
income or assets. In community property states it may
not be necessary for both spouses to file if all
substantial dischargeable debts are community debts. The
community property states are Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, and
Washington.
17. When is the best time to file a chapter 7 case?
The
answer depends on the status of the person’s
dischargeable debts, the nature and status of the
person’s nonexempt assets, and the actions taken or
threatened to be taken by creditors. The following rules
should be followed:
(1)
Don’t file the case until all anticipated debts have
been incurred, because only debts that have been
incurred when the case is filed are dischargeable and it
will be another six years before the person is again
eligible for a chapter 7 discharge. For example, a
person who has incurred substantial medical expenses
should not file a chapter 7 case until the illness or
injury has been either cured or covered by insurance, as
it will do little good to discharge, say, $100,000 of
medical debts now and then incur another $100,000 in
medical debts after the case has been filed.
(2)
Don’t file the case until the person filing has received
all nonexempt assets to which he or she may be entitled.
If the person is entitled to receive an income tax
refund or a similar nonexempt asset in the near future,
the case should not be filed until after the refund or
asset has been received and disposed of. Otherwise, the
refund or asset will have to be turned over to the
trustee.
(3)
Don’t file the case if the person filing expects to
acquire nonexempt property through inheritance, life
insurance or divorce in the next 180 days, because the
property may have to be turned over to the trustee.
(4)
If an aggressive creditor threatens to attach or
garnishee a person’s assets or income, the case should
be filed immediately to take advantage of the automatic
stay that applies to the filing of a chapter 7 case (see
Question 18, below). If a creditor has threatened to
attach or garnish the person’s wages or if a foreclosure
action has been filed against his or her home, it may be
necessary to file the case immediately in order
to protect the person’s interest in the property.
18. How does the filing of a chapter 7 case by a person
affect collection and other legal proceedings that have
been filed against that person in other courts?
The
filing of a chapter 7 case by a person automatically
suspends virtually all collection and other legal
proceedings pending against that person. A few days
after a chapter 7 case is filed, the court will mail a
notice to all creditors ordering them to refrain from
any further action against the person. This
court-ordered suspension of creditor activity against
the person filing is called the automatic stay. If
necessary, notice of the automatic stay may be served on
a creditor earlier by the person or the person’s
attorney. Any creditor who intentionally violates the
automatic stay may be held in contempt of court and may
be liable in damages to the person filing. Criminal
proceedings and actions to collect domestic support
obligations from exempt property or property acquired by
the person after the chapter 7 case was filed are not
affected by the automatic stay. The automatic stay also
does not protect cosigners and guarantors of the person
filing, and a creditor may continue to collect debts
from those persons after the case is filed.
19. How does filing a chapter 7 case affect a
person’s credit rating?
It
will usually worsen it, if that is possible. However,
some financial institutions openly solicit business from
persons who have recently filed under chapter 7,
apparently because it will be at least 8 years before
they can file another chapter 7 case. If there are
compelling reasons for filing a chapter 7 case that are
not within the person’s control (such as an illness or
an injury), some credit rating agencies may take that
into account in rating the person’s credit after filing.
20. Are the names of persons who file chapter 7 cases
published?
When
a chapter 7 case is filed, it becomes a public record
and the names of the persons filing may be published by
some credit-reporting agencies. However, newspapers do
not usually report or publish the names of consumers who
file chapter 7 cases.
21. Are employers notified of chapter 7 cases?
Employers are not usually notified when a chapter 7 case
is filed. However, the trustee in a chapter 7 case might
contact an employer seeking information as to the status
of the person’s wages or salary at the time the case was
filed or to verify a person’s current monthly income –
although this is unusual. If there are compelling
reasons for not informing an employer in a particular
case, the trustee should be so informed and he or she
may be willing to make other arrangements to obtain the
necessary information.
22. Does a person lose any legal or civil rights by
filing a chapter 7 case?
No.
Filing a chapter 7 case is not a criminal proceeding,
and a person does not lose any civil or constitutional
rights by filing.
23. May employers or governmental agencies discriminate
against persons who file chapter 7 cases?
No.
It is illegal for either private or governmental
employers to discriminate against a person as to
employment because that person has filed a chapter 7
case. It is also illegal for local, state, or federal
governmental agencies to discriminate against a person
as to the granting of licenses (including a driver’s
license), permits, student loans, and similar grants
because that person has filed a chapter 7 case.
24. Will a person lose all of his or her property if he
or she files a chapter 7 case?
Usually not. Certain property is exempt and may not be
taken by creditors unless it is encumbered by a valid
mortgage or lien. A person is usually allowed to retain
his or her unencumbered exempt property in a chapter 7
case. A person may also be allowed to retain certain
encumbered exempt property (see Question 34, below).
Encumbered property is property against which a creditor
has a valid lien, mortgage or other security interest.
25. What is exempt property?
Exempt property is property that is protected by law
from the claims of creditors. However, if exempt
property has been pledged to secure a debt or is
otherwise encumbered by a valid lien or mortgage, the
lien or mortgage holder may claim the exempt property by
foreclosing upon or otherwise enforcing the creditor’s
lien or mortgage. In bankruptcy cases property may be
exempt under either state or federal law. Exempt
property typically includes all or a portion of a
person’s unpaid wages, home equity, household furniture,
and personal effects. Your attorney can inform you as to
the property that is exempt in your case.
26. When must a person appear in court in a chapter 7
case and what happens there?
The
first court appearance is for a hearing called the
“meeting of creditors,” which is usually held about a
month after the case is filed. The person filing the
case must bring photo identification, his or her social
security card, his or her most recent pay stub and all
of his or her bank and investment account statements to
this hearing. At this hearing the person is put under
oath and questioned about his or her debts, assets,
income and expenses by the hearing officer or trustee.
In most chapter 7 consumer cases no creditors appear in
court; but any creditor that does appear is usually
allowed to question the person. For most persons this
will be the only court appearance, but if the bankruptcy
court decides not to grant the person a discharge or if
the person wishes to reaffirm a debt, there may be
another hearing about three months later which the
person will have to attend.
27. What happens after the meeting of creditors?
After the meeting of creditors, the trustee may contact
the person filing regarding his or her property and the
court may issue certain orders to the person. These
orders are sent by mail and may require the person to
turn certain property over to the trustee, or provide
the trustee with certain information. If the person
fails to comply with these orders, the case may be
dismissed, in which case his or her debts will not be
discharged. The person must also attend and complete an
instructional course on personal financial management
and file a statement with the court showing completion
of the course.
28. What is a trustee in a chapter 7 case, and what
does he or she do?
The trustee is a person appointed by the United
States trustee to examine the person who filed the case,
collect the person’s nonexempt property, and pay the
expenses of the estate and the claims of creditors. In
addition, the trustee has certain administrative duties
in a chapter 7 case and is responsible for seeing to it
that the person filing performs the required duties in
the case. A trustee is appointed in a chapter 7 case,
even if the person filing has no nonexempt property.
29. What are the responsibilities to the trustee of
the person filing the case?
The law requires the person filing to cooperate with
the trustee in the administration of a chapter 7 case,
including the collection by the trustee of the person’s
nonexempt property. If the person does not cooperate
with the trustee, the chapter 7 case may be dismissed
and the person’s debts will not be discharged. At least
7 days before the meeting of creditors the person filing
must give the trustee and any requesting creditors
copies of his or her most recent Federal income tax
returns.
30. What happens to property that is turned over to the
trustee?
It
is usually converted to cash, which is used to pay the
fees and expenses of the trustee, to pay the claims of
priority creditors, and, if there is any left, to pay
the claims of unsecured creditors.
31. What if a person has no nonexempt property for the
trustee to collect?
If,
from the bankruptcy forms filed, it appears that the
person filing has no nonexempt property, a notice will
be sent to the creditors advising them that there
appears to be no assets from which to pay creditors,
that it is unnecessary for them to file claims, and that
if assets are later discovered they will then be given
an opportunity to file claims. This type of case is
referred to as a no-asset case. Most chapter 7 cases
that are filed by consumers are no-asset cases.
32. How are secured creditors dealt with in a chapter 7
case?
Secured creditors are creditors with valid mortgages or
liens against property of the person filing bankruptcy.
Property that is encumbered by a valid mortgage or lien
is called secured property. A secured creditor is
usually permitted to repossess or foreclose on its
secured property, unless the value of the secured
property greatly exceeds the amount owed to the
creditor. The claim of a secured creditor is called a
secured claim and secured claims are collected from or
enforced against encumbered property. Secured claims are
not paid by the trustee. A secured creditor must prove
the validity of its mortgage or lien and must usually
obtain a court order before repossessing or foreclosing
on encumbered property. Encumbered property should not
be turned over to a secured creditor until a court order
to do so has been obtained, unless the property is
encumbered only to finance its purchase. The debtor may
be permitted to retain certain types of encumbered
personal property (see Question 34, below).
33. How are unsecured creditors dealt with in a chapter
7 case?
An unsecured creditor is a creditor without a valid
lien or mortgage against property of the person filing.
If the person filing has nonexempt assets, unsecured
creditors may file claims with the court within 90 days
after the first date set for the meeting of creditors.
The trustee will examine these claims and file
objections to those deemed improper. When the trustee
has collected all of the person’s nonexempt property and
converted it to cash, and when the court has ruled on
the trustee’s objections to improper claims, the trustee
will distribute the funds in the form of dividends to
the unsecured creditors according to the priorities set
forth in the Bankruptcy Code. Domestic support
obligations, administrative expenses, claims for wages,
salaries, and contributions to employee benefit plans,
claims for the refund of certain deposits and tax
claims, are given priority, in that order, in the
payment of dividends by the trustee. If there are funds
remaining after the payment of these priority claims,
they are distributed pro rata to the remaining unsecured
creditors. In chapter 7 cases filed by consumers,
unsecured creditors usually get nothing.
34. What encumbered property may a person retain in a
chapter 7 case?
A
person may retain (or redeem) certain encumbered
personal and household property, such as household
furniture, appliances and goods, wearing apparel, and
tools of trade, without payment to the secured creditor,
if the property is exempt and if the mortgage or lien
against the property was not incurred to finance the
purchase of the property. A person may also retain
without payment to the secured creditor any encumbered
property that is both exempt and subject only to a
judgment lien that is not divorce-related. Finally, a
person may retain certain encumbered exempt personal,
family, or household property by paying to the secured
creditor an amount equal to the replacement value of the
property, regardless of how much is owed to the
creditor.
35. How may a person minimize the amount of money
or property that must be turned over to the trustee in a
chapter 7 case?
In a
chapter 7 case the person filing is required to turn
over to the trustee only the nonexempt money or property
that he or she possessed at the time the case was filed.
Many nonexempt assets are liquid in nature and tend to
vary in size or amount from day to day. It is wise,
therefore, to engage in some estate planning so as to
minimize the value or amount of these liquid assets on
the day and hour that the chapter 7 case is filed. The
most common nonexempt liquid assets, and the assets that
the trustee will be most likely to look for, include the
following:
(1)
Cash
(2)
accrued earnings and benefits,
(3)
bank accounts
(4)
tax refunds
(5)
prepaid rent
(6)
sporting goods.
It
is usually advantageous to take steps to insure that the
value of each of these assets is as low as possible on
the day and hour that the chapter 7 case is filed. By
doing this the person will not be cheating or acting
illegally; he or she will simply be using the law to his
or her advantage, much the same as a person who takes
advantage of the tax laws by selling property at the
appropriate time.
Cash. If possible, the person filing should have no
cash on hand when the chapter 7 case is filed. Further,
if he or she has received cash or the equivalent
of cash in the form of a paycheck or the closing of a
bank account shortly before the filing of the case, the
funds should be disposed of for valid purposes and
receipts should be obtained when disposing of the funds
in order to prove to the trustee and the court that the
funds were validly disposed of prior to the filing of
the case. Money possessed or obtained shortly before the
filing of a chapter 7 case may be spent on such items as
food and groceries, the chapter 7 filing fee, the
attorney’s fee in the chapter 7 case, and the payment of
up to $600 to creditors whose claims the person intends
to reaffirm and continue paying after the filing of the
chapter 7 case. Payments should not be made as gifts or
loans to friends or relatives, however, as the trustee
may later recover these payments.
Bank Accounts. The best practice is to close out all
bank accounts before filing a chapter 7 case. If a bank
account is not closed, the balance of the account should
be as close to zero as the bank will allow and all
outstanding checks must clear the account before the
case is filed. If the person filing has written a check
to someone for, say, $50 and if the check has not
cleared the account when the case is filed, the S50 in
the account to cover the outstanding check will be
deemed an asset and will have to be paid to the trustee.
Prepaid Rent. If a person’s rent is paid on the
first day of the month and if the person’s chapter 7
case is filed on the tenth day of the month, the portion
of the rent covering the last 20 days of the month, if
not exempt, will be deemed an asset and will later have
to be paid to the trustee. If possible, the person
should make arrangements with the landlord to pay rent
only through the date that the case is to be filed and
to pay the balance of the rent from funds acquired after
the case is filed. If this is not possible, the case
should be filed near the end of the rent period.
Accrued Earnings and Benefits. In Colorado, and
under the federal law, only 75% of a person’s
earnings are exempt. Therefore, the trustee may be
allowed to take the nonexempt portion (usually 25%)
of any accrued and unpaid wages, salary,
commissions, vacation pay, sick leave pay, and other
accrued and nonexempt employee benefits. Normally, then,
the best time to file a chapter 7 case is the morning
after payday. Even then, if the pay period does not end
on payday, the person may have accrued earnings unless
special arrangements are made with the employer. If
annual leave or vacation pay is convertible to cash, it
should be collected before the chapter 7 case is filed,
as should any other nonexempt employee benefits that are
convertible to cash.
Tax Refunds. In most states, a tax refund is not
exempt and becomes the property of the trustee if it has
not been received by the person prior to the filing of a
chapter 7 case. Therefore, if a tax refund is expected,
a chapter.7 case should not be filed until after the
refund has been received and validly disposed of. Even
if the case is filed before the end of the tax year, if
the person filing later receives a refund, the trustee
may be entitled to the portion of the refund earned
prior to the filing of the case. The best practice,
then, is to either file the chapter 7 case early in the
tax year (but after the refund from the previous year
has been received) or make arrangements to insure that
there will be no tax refund for that year.
Sporting Goods. If the person filing owns guns,
fishing gear, skis, cameras, or similar items of value
that are not exempt, he or she will later have to turn
them, or their cash equivalent, over to the trustee.
Such items should be disposed of prior to the filing of
the case, especially if they are of considerable value.
36. May a utility company refuse to provide service
to a person if the company’s utility bill is discharged
under chapter 7?
If,
within 20 days after a chapter 7 case is filed, the
person filing furnishes a utility company with a deposit
or other security to insure the payment of future
utility services, it is illegal for a utility company to
refuse to provide utility service to the person after
the case is filed, or to otherwise discriminate against
the person, if its bill for past utility services is
discharged in the person’s chapter 7 case.
37. What should a person do if he or she moves before
the chapter 7 case is completed?
The
person should immediately notify the bankruptcy court in
writing of the new address. Because most communications
between the person filing and the bankruptcy court are
by mail, it is important that the bankruptcy
court always have the person’s current address.
Otherwise, the person may fail to receive important
notices and the chapter 7 case may be dismissed. Many
courts have change-of-address forms for persons to use
when they move, and one of these forms should be
obtained if a move is planned.
38. How is a person notified when his or her
discharge has been granted?
The
person is usually notified by mail. Most courts send a
form called ‘Discharge of Debtor’ to the person filing
and to all creditors. This form is a copy of the court
order discharging the person from his or her
dischargeable debts, and it serves as notice that
the discharge has been granted and that creditors are
forbidden from attempting to collect discharged debts.
It is usually mailed about four months after a chapter 7
case is filed.
39. What if a person wishes to repay a dischargeable
debt?
A
person may repay as many dischargeable debts as desired
after filing a chapter 7 case. By repaying one debt, a
person does not become legally obligated to repay any
other debts. The only dischargeable debt that a person
is legally obligated to repay is one for which the
person and the creditor have signed what is called a
“reaffirmation agreement.” If the person was not
represented by an attorney in negotiating the
reaffirmation agreement with the creditor, the
reaffirmation agreement must be approved by the court to
be valid. If the person was represented by an attorney
in negotiating the reaffirmation agreement, the attorney
must file the agreement and other required documents
with the court in order for the agreement to be valid.
If a dischargeable debt is not covered by a
reaffirmation agreement, the person filing is not
legally obligated to repay the debt, even if the person
has made a payment on the debt since filing the chapter
7 case, has agreed in writing to repay the debt, or has
waived the discharge of the debt in a waiver that was
not approved by the bankruptcy court.
40. How long does a chapter 7 case last?
A
successful chapter 7 case begins with the filing of the
bankruptcy forms and ends with the closing of the case
by the court. If there are no nonexempt assets for the
trustee to collect, the case will most likely be closed
shortly after the person filing receives his or her
discharge, which is usually about four months after the
case is filed. If there are nonexempt assets for the
trustee to collect, the length of the case will depend
on how long it takes the trustee to collect the assets
and perform his or her other duties in the case. Most
chapter 7 consumer cases with assets last about six
months, but some last considerably longer.
41. What should a person do if a creditor later attempts
to collect a debt that was discharged in his or her
chapter 7 case?
When
a chapter 7 discharge is granted, the court enters an
order prohibiting creditors from later attempting to
collect any discharged debt from the person filing. Any
creditor who violates this court order may be held in
contempt of court and may be liable to the person for
damages. If a creditor later attempts to collect a
discharged debt from the person, the person should give
the creditor a copy of his or her chapter 7 discharge
and inform the creditor in writing that the debt was
discharged in the chapter 7 case. If the creditor
persists, the person should contact an attorney. If a
creditor files a lawsuit on a discharged debt, it is
important to inform the court in which the lawsuit is
filed that the debt was discharged in bankruptcy. The
lawsuit should not be ignored because even though a
judgment entered on a discharged debt can later be
voided, voiding the judgment may require the services of
an attorney, which could be costly.
42. How does a chapter 7 discharge affect the liability
of cosigners and other parties who may be liable to a
creditor on a discharged debt?
A
chapter 7 discharge releases only the person or persons
who filed the chapter 7 case. The liability of any other
party on a debt is not affected by a chapter 7
discharge. Therefore, a person who has cosigned or
guaranteed a debt for the person filing is still liable
for the debt even if the person filing receives a
chapter 7 discharge with respect to the debt. The only
exception to this rule is in community property states
where the spouse of the person filing is released from
certain community debts by the chapter 7 discharge.
43. What is the role of the attorney for the person
filing a chapter 7 case?
The
attorney for the person filing performs the following
functions in a typical chapter 7 consumer case:
(1)
Analyze the amount and nature of the debts owed by the
person filing and determine the best remedy for the
person’s financial problems.
(2)
Advise the person filing of the relief available under
chapter 7 and the other chapters of the Bankruptcy Code,
and of the advisability of proceeding under each
chapter.
(3)
Assist the person in obtaining the required
prebankruptcy budget and credit counseling briefing.
(4)
Assemble the information and data necessary to prepare
the chapter 7 forms for filing.
(5)
Prepare the petitions, schedules, statements and other
chapter 7 forms for filing with the bankruptcy
court.
(6)
Assist the person filing in arranging his or her assets
so as to enable the person to retain as many of the
assets as possible after the chapter 7 case.
(7)
Filing the chapter 7 petitions, schedules,
statements and other forms with the bankruptcy court,
and, if necessary, notifying certain creditors of the
commencement of the case.
(8)
If necessary, assisting the person filing in reaffirming
certain debts, redeeming personal property, setting
aside mortgages or liens against exempt property, and
otherwise carrying out the matters set forth in the
statement of intention.
(9)
Attending the meeting of creditors with the person and
appearing with the person at any other hearings that may
be held in the case.
(10)
Assist the debtor in attending and completing the
required instructional course on personal financial
management.
(11)
If necessary, preparing and filing amended schedules,
statements, and other documents with the bankruptcy
court in order to protect the rights of the person.
(12)
If necessary, assisting the person in overcoming
obstacles that may arise to the granting of a chapter 7
discharge.
(13)
The fee paid, or agreed to be paid, to an attorney
representing the person filing in a chapter 7
case must be disclosed to and approved by the bankruptcy
court. The court will allow the attorney to charge and
collect only a reasonable fee. Most attorneys collect
all or most of their fee before the case is filed. |
