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File Chapter 7 Bankruptcy

Become Debt-Free and Get A Fresh Start in Life by Filing Chapter 7

Chapter 7 bankruptcy relief is the most popular bankruptcy chapter because it offers the bankruptcy filer the opportunity to eliminate debts and obtain a fresh start in life. Chapter 7 bankruptcy is commonly called simple bankruptcy, bankruptcy liquidation, straight bankruptcy or full bankruptcy because it is the bankruptcy chapter most familiar to Americans. When the average person talks about filing bankruptcy they are most likely talking about filing chapter 7 bankruptcy.

Chapter 7 bankruptcy is designed to give a person a fresh start in life. One of the principal purposes of the U.S. Bankruptcy Code is to grant a fresh start to an honest but unfortunate individual who is overwhelmed with debt.

Chapter 7 bankruptcy is actually the liquidation chapter of the bankruptcy laws that allows the person filing bankruptcy to eliminate debts in return for the potential liquidation of certain non-exempt assets. Under chapter 7 bankruptcy, a trustee is appointed to determine if there are any assets to collect for the benefit of the estate. In most chapter 7 bankruptcy cases there are no assets that the trustee collects. In these overwhelming majority of cases, the person filing bankruptcy keeps all of the assets and property but finds themselves in the fantastic position of being debt-free!

Chapter 7 Topics

  1. Court Cases of Interest
  2. Chapter 7 Bankruptcy Basics
  3. Garnishments Stopped
  4. Credit Card Debts Eliminated
  5. Lawsuits Stopped
  6. Harassing Phone Calls Stopped
  7. Medical Bills Eliminated
  8. Living Debt Free
  9. Get a Fresh Start in Life
  10. Chapter 7 Eligibility
  11. How Chapter 7 Bankruptcy Works
  12. Role of the Case Trustee
  13. The Chapter 7 Bankruptcy Discharge

Recent Court Cases

Below are some interesting legal cases involving Americans’ attempts to file Chapter 7 bankruptcy to eliminate or discharge debt. The cases offered on this website are removed and replaced periodically with newer cases. So I urge you to check back to this website periodically for the latest developments. However, prior cases are transferred from this webpage to my bankruptcy blog for you to retrieve. You are encouraged to view my bankruptcy blog to discover more information about eliminating or discharging debts. Visit Your Bankruptcy Advisor Blog or contact me to talk to an experienced bankruptcy attorney.

  1. In the case of In re Brady, 419 B.R. 479 (Bankr. M.D. FL. 2009), the court addressed a hotly debated issue as a result of the US Trustee filing a motion to dismiss the Chapter 7 case on "abuse" grounds. The trustee sought dismissal because the debtor took a means test deduction for secured payments relating to debtor’s principal residence that debtor intends to surrender postpetition.

    The Court rejected the US Trustee’s position and allowed the debtor to take the deduction. The Court found that under the "snapshot" approach to interpreting the Means Test, a Chapter 7 debtor may deduct from current monthly income long-term secured debt payments that are allowed on the petition date, even If the debtor intends to surrender the property securing the debt.

  2. In the case of In re Coco, 335 Fed. Appx. 224 (3rd Cir. 2009), a chapter 7 debtor brought an adversary proceeding against the student loan creditor, seeking determination that her student loan debt was not excepted from discharge.

    The bankruptcy court granted summary judgment against the student loan debtor, finding there were no material issues of fact and that the student loan creditor was entitled to judgment as a matter of law. The bankruptcy court held that the debtor failed to establish undue hardship and was thus not entitled to a discharge of the student loan debt.

    The student loan debtor appealed the bankruptcy court’s decision. The court of appeals held that factual issues as to whether debtor made good-faith efforts to repay her student loans precluded summary judgment for creditor. The bankruptcy court’s judgment was vacated.

    The student loan debtor will get her trial to prove that she made good-faith efforts to repay her student loan.

  3. In the case of In re Moore, 410 B.R. 439 (Bankr. E.D.Va. 2009), the court discussed the "automatic stay" provisions of the US Bankruptcy Code. The court reaffirmed that the "automatic stay" provisions comprise an integral part of the bankruptcy protection process.

    The filing of a bankruptcy petition results in the immediate implementing of the automatic stay. No motion need be filed, and no order need be entered by any court. The automatic stay operates as a broad stay of most types of creditor activity, including "any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate" and "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case." Section 362(a)(3) and (5).

    The automatic stay is one of the fundamental debtor protections provided by the Bankruptcy Code. It gives the debtor a breathing spell from his creditors; it stops all collection efforts, all harassment, and all foreclosure actions. It also permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove the debtor into bankruptcy.

    The automatic stay, moreover, is not solely for the benefit of the debtor. It also protects the debtor’s creditors and promotes the goal of equality of distribution by ensuring that individual creditors do not seize assets that would otherwise be available to pay allowed claims in the case or take other actions that would interfere with administration of the case.

    A violation of the automatic stay may be redressed by the bankruptcy court under its civil contempt powers. Additionally, the Bankruptcy Code gives an individual debtor a right of action for damages, including punitive damages and attorney’s fees, resulting from a willful violation of the automatic stay.

    Therefore, the "automatic stay" provisions of the Bankruptcy Code should not be treated lightly or dismissed out of hand. The stay violation sanction can be significant. The sanctions apply equally to creditors whose intentional acts violate the stay, even if said creditor had never heard of the concept of the "automatic stay." The important facts are whether the creditor knew a bankruptcy case had been filed and whether the creditor’s acts were intentional.

    Best advice…when in doubt, contact a bankruptcy attorney for guidance before taking action.

  4. In the case of In re Phillips, 417 B.R. 30 (Bankr. W.D.OH 2009), Debtor filed chapter 7 bankruptcy in an effort to discharge debts. Debtor was required to satisfy the "means test" to qualify for the chapter 7 discharge because debtor’s income was above the median income level for debtor’s state. Debtor deducted from her current monthly income expenses related to real property vacated and surrendered prior to filing bankruptcy.

    Debtor’s discharge was challenged by the US Trustee (UST). The UST maintained that debtor’s case should have been dismissed pursuant to §707 because debtor failed the means test that resulted in a presumption of abuse for above median income debtors when the debtor’s current monthly income was reduced by allowed deductions. Specifically, the UST asserted that it was improper for debtor to take deductions for payment of mortgages and taxes on a house that had been surrendered by debtor prior to debtor’s bankruptcy filing.

    The issue before the Phillips court was whether the Bankruptcy Code’s "means test" allowed debtor to deduct from her current monthly income expenses related to real property vacated and surrendered prior to filing bankruptcy. The court noted that the majority view was that a debtor may deduct expenses on the means test for payments on secured debt even when the collateral was surrendered as long as the debtor’s continuing contractual obligations remained unextinguished on the date of the bankruptcy filing. Generally, these courts interpreted the plain language "scheduled as contractually due to secured creditors" to mean that a debtor may deduct secured debts that are contractually owed by the debtor to secured parties as of the petition date. The Phillips court believed that the majority courts essentially take a snapshot of the debtor’s schedules on the petition date to calculate the secured debt deduction on the means test form.

    Finally, the Phillips court held that the means test allowed debtor to deduct from her current monthly income expenses related to real property vacated and surrendered prior to the date the bankruptcy case was filed. Consequently, the court found that a presumption of abuse did not arise under §707(b)(2).

  5. In re Booth, 410 B.R. 672 (Bankr. E.D. Wash 2009). A chapter 7 bankruptcy debtor brought an adversary complaint against a student loan creditor seeking discharge of the student loan debt pursuant to Section 523(a)(8) of the Bankruptcy Code alleging that an “undue hardship” would result if the debtor had to repay the student loan debt. Prior to filing bankruptcy, the debtor had participated in a student loan deferral payment program. As a result of the program and debtor’s deteriorating financial position, the student loan creditor established a zero dollar per month short-term repayment plan with the balance to be paid much later. Nevertheless, debtor filed for bankruptcy and sought a complete discharge of all the student loan debt.

    The student loan creditor opposed the complete discharge of the student loan debt. In fact, the creditor filed a motion for summary judgment seeking an order finding the student loan debtor NOT eligible for a bankruptcy discharge AS A MATTER OF LAW because the deferral payment program had granted debtor a zero dollar per month short-term repayment plan. In short, the student loan creditor believed that the debtor could not establish “undue hardship” as a matter of law since debtor had agreed to a zero dollar short-term repayment plan and therefore no hardship existed, much less “undue” hardship.

    The Court rejected the student loan creditor’s argument and denied the motion for summary judgment. The court noted the difference in relief granted by both options: (a) the bankruptcy discharge offered permanent relief by eliminating the student loan debt forever, whereas (b) the deferral payment program only offered short-term relief with the balance coming due later. Next, the court focused on the factual review given by both options: (a) the bankruptcy court would review the facts of each case on a case-by-case basis to determine if the repayment of the student loan debt would result in an undue hardship upon the debtor, whereas, (b) the deferral payment program gave no individual review, instead relying upon a formula to determine loan payments.

    The conclusion is that the student loan debtor was allowed to go forward with the bankruptcy case and will be offered an opportunity to prove that the payment of the student loan debt would be an undue hardship on the debtor and debtor’s dependents.

  6. In re Knecht, 410 B.R. 650 (Bankr. D. Montana 2009). A bankruptcy debtor filed chapter 13 bankruptcy and proposed a repayment plan that would cause the student loan creditor to be the only unsecured creditor to receive any money. Specifically, the debtor sought confirmation of the repayment plan which proposed to pay more than $36,000 to the student loan creditor while paying nothing to the other unsecured creditors. The trustee objected asserting that the proposed plan unreasonably “discriminated” among unsecured creditors.

    The bankruptcy court sustained the trustee’s objection and denied confirmation, holding that the student loan debtor had failed to satisfy the burden of proving that the repayment plan’s separate classification of student loan debt did not unfairly discriminate against the other unsecured creditors.

    The court believed that a student loan creditor cannot create a chapter 13 plan that allows a student loan debtor to repay student loans “out of the hide” of other unsecured creditors. Instead, the other unsecured creditors must be paid their pro rata share. For example, let’s assume a debtor owes both $36,000 in student loan debt and another $36,000 in credit card debt. Now, if that debtor would file a plan calling for unsecured creditors to receive $36,000, then the student loan creditor would only be receiving $18,000 while the credit card creditors would also be receiving the other $18,000. Clearly this result is not as beneficial to a debtor because the $18,000 paid to the credit card creditor would be wasted since any unpaid credit card debt would be discharged---whether $18,000 is still owed or the full $36,000 is still owed; moreover, this result is not as beneficial because the $18,000 of unpaid student loan debt would survive the bankruptcy and have to be repaid--- absent a separate adversary complaint proving undue hardship.

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Chapter 7 Bankruptcy Basics

The primary purpose of filing chapter 7 bankruptcy is to receive a bankruptcy discharge order that eliminates debts. Chapter 7 bankruptcy is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. People who file chapter 7 bankruptcy whose debts are primarily consumer debts are subject to a means test designed to determine whether the case should be permitted to proceed under chapter 7. If the income of the person filing bankruptcy is greater than the median income for the state of residence and family size, in some cases, creditors have the right to file a motion requestinng that the court dismmiss the case. It is up to the court to decide whether the case should be dismissed. Under chapter 7, the person filinng bankruptcy may claim certainn property as exempt under governing law. A trustee may have the right to take possession of and sell the remaining property that is not exempt adn use the sale proceeds to pay creditors.

Although obtaining the discharge is the purpose of filing chapter 7 bankruptcy, the bankruptcy court may deny the discharge if the purpose filing chapter 7 bankruptcy is found to have committed certain kinds of improper conduct setforth in the bankruptcy laws. The bankruptcy discharge order does not cover all debts owed by all people filing bankruptcy. Even if the person filing bankruptcy receives a general discharge, some particular debts are not discharged under the bankruptcy law because of public policy reasons. The person filing chapter 7 bankruptcy may still be responosible for most taxes and student loans; debts incurred to pay nondischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in the bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can provide that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that that particular debt is no discharged.

There is no repayment plan as there are in bankruptcy chapters 11, 12 & 13. Receiving the discharge that eliminates debts is a tradeoff that comes to the person filing bankruptcy for the willingness to surrender non-exempt assets. The good news is most people filing bankruptcy have litte to no non-exempt assets that are at risk of loss. So the typical person filing bankruptcy will keep all their assets and will not lose any property. But, to receive this discharge the person filing Chapter 7 bankruptcy must provide comprehensive financial documentation that includes all assets, liabilities, income, expenses, tax returns, pay stubs/pay advices, and more.

In each case, a bankruptcy trustee will be appointed to review the comprehensive financial documentation. The trustee will also personally meet with the person filing Chapter 7 bankruptcy. The trustee then makes a decision whether to liquidate any or all "non-exempt" assets for the benefit of the creditors. If desired, the bankruptcy trustee could gather and sell the "nonexempt" assets of the person to file chapter 7 bankruptcy and use the proceeds of such assets to pay creditors in accordance with the provisions of the bankruptcy laws. The bankruptcy laws will allow the person filing chapter 7 bankruptcy to keep certain exempt property; but a trustee will liquidate the remaining assets. Accordingly, the person filing Chapter 7 bankruptcy should recognize that the filing of a bankrutpcy case may result in the loss of property.

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a person filing bankruptcy in connection with a bankruptcy case is subject to examination by the Attorney General actingn through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

Creditors are prohibited by the bankruptcy laws' automatic stay provisions from taken collection actions against the person filing bankruptcy. Prohibited collection actions are listed in Section 362 of the bankruptcy laws. Common examples of prohibited actions include contacting the bankruptcy filer by telephone, mail or otherwise to demand payment; taking actions to collect money or obtain property from the person filing bankruptcy; repossessing the filer's car, truck, or van; starting or continuing a lawsuit or foreclosures; and garnishing wages or deducting from the filer's wages. Under certain circumstances, the stay may be limtited to 30 days or not exist at all for filers who have filed bankruptcy more than once in the past 12 months, although the bankruptcy filer can request the court to extend or impose the automatic stay for the remainder of the case.

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Garnishments Stopped

Garnishments can be stopped by filing Chapter 7 bankruptcy. Garnishments take money from your hard-earned pay check and give that money to creditors to pay over-due bills. By filing bankrutpcy, the garnishments can be stopped and you can keep more money in your pocket. Furthermore, the unsecured creditors who had been receiving the garnished money will no longer get any money from you --- not now and not ever. Exceptions to this rule may apply to garnishments paid to the government and for domestic support obligations.

The process is relatively simple. Give the garnishment papers to your bankruptcy attorney. The attorney sends notice to your employer and to the creditor receiving the garnishment money. The attorney demands that the garnishment stop immediately after filing the bankrutpcy case. Failure to honor the bankruptcy attorney's request could lead to fines, penalties, and attorney fees being awarded against the employer and/or creditor receiving the garnishing creditor.

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Credit Card Debts Eliminated

Say "Good Bye" to credit card debts. Just imagine how good you would feel being debt free. Do you have worries every time the mailman comes with a new bill from a credit card company? Do you fight with your spouse over the inability to pay the credit card debts? Do you deny your family or yourself something you need because you are trying to save money to make the minimum payments on the credit card debts?

If so, Chapter 7 is a beautiful solution to your financial problems. Your credit card debts will be eliminated. You will not have to pay any balances, any fees, any costs, any late charges, or any finance charges. You will no longer be obligated to make any payments to the credit card companies.

Credit card companies and their bill collectors will not be able to contact you, call you, write you, sue you, or otherwise harass you. After filing, you can answer the phone and be guaranteed that a bill collector is not calling. Best of all, your obligation to pay the credit card debt will be gone forever. Your future income will be yours to keep, save, or spend as you like.

Read an interesting law journal article that Attorney Schaller authored about discharging credit card debt by filing bankruptcy Read Bankruptcy Article .

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Lawsuits Stopped

Lawsuits are a nasty part of life. Being sued is embarrassing and humiliating. A sheriff's deputy knocks on your door and serves you with papers or worse --- serves your spouse or kids. Embarrasing for sure. Can it be prevented? Absolutely YES.

By filing Chapter 7 bankruptcy, you will NOT be sued and no person will knock on your door with a summons and complaint while you are under the protection of the US Bankruptcy Court. The automatic stay provisions of the US Bankruptcy Code prohibit any and all creditors from filing a lawsuit against you while your bankruptcy case is pending without court authorization. After your case is completed, you will receive a bankruptcy discharge. With that discharge, you will be entitled to something called the bankruptcy injunction. The bankruptcy injunction enjoins all creditors from suing you in an attempt to collect a debt discharged in your bankruptcy case. Violation of the bankruptcy injunction could result in fines and penalties being assessed against the former creditor --- How is that for the shoe being on the other foot?

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Harassing Phone Calls Stopped

Harassing phone calls will stop as soon as you file Chapter 7 bankruptcy. No creditor is allowed to contact you by phone in efforts to collect a debt. No creditor can hire a surrogate collection agency to contact you by phone in an efforct to collect a debt.

The US Bankruptcy Code's automatic stay provisions mandate that all phone calls must stop while the case is pending. After receiving the bankruptcy discharge, you will be further protected by the bankruptcy injunction. This injunction enjoins or prohibits creditors whose debts have been discharged from EVER contacting you again. Penalties, fines and attorney fees can be awarded against any creditor who intentionally violates the automatic stay protections or the bankruptcy injunction.

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Medical Bills Eliminated

Your medical bills will be automatically eliminated after your file Chapter 7 bankruptcy. All medical bills that you owe will be eliminated, including hospital bills, doctor bills, medicine bills, medical clinic bills, prescription bills, nursing bills, pharmacy bills, out-patient bills, therapy bills, and medical equipment bills.

Just gather all your medical bills and bring them to the initial meeting with your bankruptcy attorney. The medical creditors will be listed in the bankruptcy schedules and a notice of the bankruptcy filing will be mailed to each creditor by the Clerk of the US Bankrutptcy Court. This notice will contain a warning to creditors that all collection action must stop.

The debts owed to these medical providers will be eliminated and you will not be contacted by them again after filing. No bills or future invoices will be mailed to you. No invoices will arrive. No phone calls will be received. In short, your medical bills will be gone.

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Living Debt Free

Debt-free living is the place to be. Imagine no bills, no invoices, no over-due notices, no collections, no lawsuits, and no harassing phone calls from collection agencies. All of your future income can be used to satisfy the wants and needs of you and your family.

Peace of mind is the hallmark of living debt free. Chapter 7 bankruptcy will eliminate the hassles and frustrations of a debt-ridden life. You can stop fighting with your spouse over money. You can stop feeling bad or guilty about not being able to pay the bills. Over-due notices can be thrown in the garbage. Being debt free allows you to feel great about yourself and your new fresh start in life ... debt free.

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Get a Fresh Start in Life

A fresh start in life is the goal of every Chapter 7 bankruptcy case. This goal is achieved at the end of the bankruptcy case after the bankruptcy discharge has been entered. In most Chapter 7 cases, the bankruptcy discharge is entered approximately 65 days after the date of the original Section 341 meeting of creditors. In Illinois, no discharge hearing is conducted. Instead, the discharge is granted automatically unless a party objects to the entry of the discharge order on a timely basis.

A fresh start in life gives you the opportunity to start over debt free. Your dischargeable debts would be gone. You could move to a new town or get rid of the car you don't like. Neither creditor could stop you from surrendering the property and moving on with your life. Of course you could consider keeping these assets secured by debts, but you don't have to repay these debts if you don't want to. After filing Chapter 7, you make the decision on whether you want to get rid of or reaffirm the secured debts. Most of my Chapter 7 clients have opted to eliminate their debts and be debt free so they could enjoy a fresh start in life.

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Chapter 7 Eligibility

In general, most all Americans qualify to file chapter 7 bankruptcy. Bankruptcy protection is available under chapter 7 regardless of the amount of debts owed by the person filing chapter 7 bankruptcy or whether that person is solvent or insolvent. However, there are a few eligibility exceptions. For example, a person filing chapter 7 bankruptcy cannot file chapter 7 unless within 180 days before filing, that person has received credit counseling from an approved credit counseling agency either in an individual or group briefing.

Another limitation is that the person filing chapter 7 bankruptcy cannot file a chapter 7 case if that person has voluntarily dismissed a previous bankruptcy case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. Next, you cannot file under chapter 7 if during the preceding 180 days a prior bankruptcy case was dismissed due to that person's willful failure to appear before the court or comply with orders of the court. Plus, to file chapter 7 bankruptcy a person must pass the chapter 7 means test ... a complex analysis of income and expenses during the 6 months prior to filing.

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How Chapter 7 Bankruptcy Works

There is much work to be done prior to filing a chapter 7 bankruptcy case. A comprehensive strategy should be employed to gather and review necessary financial documentation, digest the bankruptcy laws and procedure, and execute the bankruptcy petition, schedules, and statements. An experienced bankruptcy attorney would be helpful to guide you through this process.

A chapter 7 bankruptcy case begins with the filing of a petition with the bankruptcy court in your district. In addition to filing the bankruptcy case, the person filing chapter 7 bankruptcy must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; (4) a schedule of executory contracts and unexpired leases; (5) a creditors matrix; and (6) a statement of monthly income/ means test . The person filing chapter 7 bankruptcy must file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling. Next, the person filing chapter 7 bankruptcy must also provide the assigned case trustee with copies of pay stubs/pay advices for the 60-day period prior to the date the case was filed. Plus, the person filing chapter 7 bankruptcy must provide the case trustee a copy of tax returns or IRS tax transcripts for the most recent tax year as well as any tax returns filed during the case. A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors. Official bankruptcy forms are required and highly structured. These forms can be obtained from your bankruptcy attorney.

To file bankruptcy is not free. The Clerk of the US Bankruptcy Court will charge the person filing chapter 7 bankruptcy $299 to file the bankruptcy case. The person filing chapter 7 bankruptcy must also pay for the pre-filing bankruptcy credit counseling course (approximately $25 to $50) and the bankruptcy filer must pay for the post-filing bankruptcy debtor education course (approximately $17 to $50).

In order to satisfy the bankruptcy documents requirement, the person filing chapter 7 bankruptcy must provide the required information requested in the petition, statement of financial affairs, and schedules. That information includes, in part, the following:

  1. A list of all creditors and the amount and nature of their claims;
  2. The source, amount, and frequency of income;
  3. A list of all property; and
  4. A detailed list of monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married couples filing bankruptcy must gather the same information for both spouses regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing a bankruptcy case. In a situation where only one spouse is prepared to file a bankruptcy case, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

Filing a chapter 7 bankruptcy case automatically stays (stops) most collection actions against the person filing chapter 7 bankruptcy or their property. For example, file a chapter 7 bankruptcy case to stop foreclosure, stop sheriff sale, stop repossession, stop garnishment, and stop lawsuit. But there are exceptions. The filing of the bankruptcy case does not stop certain types of actions listed under 11 U.S.C. § 362(b), like police actions. The automatic stay would not be in effect at all if the person filing chapter 7 bankruptcy had two prior bankruptcy cases pending during the 12 month period prior to filing a new bankruptcy case; however, the bankruptcy court could impose the automatic stay on creditors after a motion and hearing. In other cases, the stay may be effective only for a short time; for example, the automatic stay would be in force for only 30 days (unless extended upon motion and a court hearing) if the person filing chapter 7 bankruptcy had one prior case pending during the 12 month period prior to filing a new bankruptcy case. The automatic stay arises automatically by operation of law and does not require any court hearing or judicial action. As long as the stay is in effect, creditors generally may not initiate and must stop foreclosure, stop sheriff sale, stop lawsuit, stop wage garnishment, demand letter, or even telephone calls demanding payments. The bankruptcy attorney could provide written notice to the creditors if a critical action is pending on the day the bankrutpcy case was file. Either way, the bankruptcy clerk gives notice of the bankruptcy case filing to all creditors whose names and addresses are provided by the person filing bankruptcy.

The person filing chapter 7 bankruptcy is required to meet with the chapter 7 trustee between 20 and 40 days after the petition is filed. The trustee will conduct a Section 341 meeting of creditors to review the financial documents and court papers filed with the clerk of the court when the bankruptcy case was filed. During this meeting, the bankruptcy trustee places the person filing chapter 7 bankruptcy under oath, and both the trustee and creditors, if present, may ask questions. To file chapter 7 bankruptcy, a person must agree to attend the meeting in person. This is a great time to have a bankruptcy attorney at one's side. The person filing chapter 7 bankruptcy must truthfully answer questions regarding financial affairs and property. If both spouses have filed a joint petition, both must attend the creditors' meeting and answer questions.

Again, the person filing chapter 7 bankruptcy must tell the truth or risk losing the bankruptcy discharge. More importantly, false testimony under oath would be perjury and could result in criminal prosecution. The person filing chapter 7 bankruptcy is also required to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The bankruptcy laws require the trustee to ask questions at the meeting of creditors to ensure that the person filing chapter 7 bankruptcy is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on one's credit history, the ability to file a bankruptcy case under a different bankruptcy chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. Some trustees provide written information on these topics at or before the meeting to ensure that the person filing chapter 7 bankruptcy is aware of this information. The bankruptcy judge assigned to your case will not attend the meeting.

The person filing chapter 7 bankruptcy could convert the bankruptcy case to chapter 7 bankruptcy if the bankruptcy filier is currently involved in a chapter 13 case. This is most common when the person filing chapter 7 bankruptcy has suffered a substantial reduction in income or an increase in expenses --- or both. In these cases, the person filing chapter 7 bankruptcy may no longer be able to fund a viable chapter 13 plan. Then, the court would allow the chapter 13 bankruptcy filer to convert the chapter 13 bankruptcy case to a case filed under chapter 7 bankruptcy. Once converted, the bankruptcy case would continue as if the case had been filed under chapter 7 bankruptcy originally. The person filing chapter 7 bankruptcy would then be entitled to a chapter 7 discharge as if the case had been filed as a chapter 7 bankruptcy case from the inception.

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Role of the Case Trustee

An impartial case bankruptcy trustee is appointed to every chapter 7 bankruptcy case by the the U.S. Trustee's Office. The appointment is typically assigned randomly via a computer assignment system. You do not have the option of selecting the trustee assigned to your case. The person filing chapter 7 bankruptcy gets the "luck of the draw." The trustee is required to meet with the person filing chapter 7 bankruptcy at the Section 341 meeting of creditors and to determine whether there are any "non-exempt" assets. If non-exempt assets exist, then the trustee could administer the case and liquidate nonexempt assets. However, it is more typical that there are NO assets to administer and all assets are "exempt." If all assets are exempt or subject to valid liens (like mortgages on a home and vehicle liens on cars and trucks), the trustee will normally file a "no asset" report with the court, and there will be no liquidation of assets and no distribution to unsecured creditors. In that case the person filing chapter 7 bankruptcy would not lose any asset or piece of property. Most chapter 7 bankruptcy cases involving individual debtors are "no asset" cases.

But if the case appears to be an "asset" case, then the clerk of the court would mail to the listed creditors a blank proof of claim form. To receive any money from the trustee, a creditor must file a completed and signed proof of claim form with the clerk of the court's office. Unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, however, has 180 days from the date the case is filed to file a claim. In the typical no-asset chapter 7 bankruptcy case, there is no need for creditors to file proofs of claim because there will be no distribution. 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 bankruptcy estate is created by filing a chapter 7 bankruptcy case. The bankruptcy estate technically becomes the temporary legal owner of all property. It consists of all legal or equitable interests owned by the person filing chapter 7 bankruptcy in property as of the commencement of the case, including property owned or held by another person if one has an interest in the property. Generally speaking, the creditors are paid only from nonexempt property of the estate liquidated and administered by the trustee.

The primary role of a chapter 7 bankruptcy trustee in an asset case is to liquidate nonexempt assets in a manner that maximizes the return to unsecured creditors. The trustee accomplishes this by selling the 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 held in the property. The trustee may also attempt to recover money or property under the trustee's "avoiding powers." The trustee's avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the bankruptcy petition was filed; undo security interests and other prepetition transfers of property that were not properly perfected under nonbankruptcy law at the time of the petition; and pursue nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law.

Although rarely happening, the person filing chapter 7 bankruptcy could be paid any excess liquidated assets remaining after all creditors who filed a valid and timely proof of claim have been paid in full. Consequently, the person filing chapter 7 bankruptcy would not be 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, like taxes and domestic support obligatons. Thus the primary concern in a chapter 7 bankruptcy case would be to retain exempt property and to receive a discharge that covers as many debts as possible.

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The Chapter 7 Bankruptcy Discharge

The person filing chapter 7 bankruptcy should be granted a discharge at the conclusion of the chapter 7 bankruptcy case. The discharge would release the person filing chapter 7 bankruptcy from personal liability for most debts and would prohibit the creditors owed those debts from taking any collection actions. Because a chapter 7 bankruptcy discharge is subject to many exceptions, the person filing chapter 7 bankruptcy would be smart to consult a skilled bankruptcy attorney before filing a bankruptcy case to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, a person filing chapter 7 bankruptcy receives a discharge in more than 95 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 to the entry of a discharge order, 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 Section 341 meeting of creditors.

The grounds for denying a discharge in a chapter 7 bankruptcy case are narrow and are construed against the party trying to deny the discharge. The party seeking to deny a discharge must take court acton and file court papers before the bankruptcy judge assigned to your case to review. The bankruptcy judge makes the final decision on whether the bankruptcy filer would be entitled to a discharge. Among other reasons, the court may deny a discharge if it finds that the person filing chapter 7 bankruptcy: 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 bankrutptcy estate; or failed to complete an approved instructional course concerning financial management.

After the person filing chapter 7 bankruptcy receives a discharge, a secured lender would be barred or enjoined from attempts to collect money. However, the secured lender could retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if the person filing chapter 7 bankruptcy wishes to keep certain secured property (such as an automobile), that person should consider "reaffirming" a debt. A reaffirmation agreement is an agreement between the person filing chapter 7 bankruptcy and a particular creditor stating that the filer 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 person filing chapter 7 bankruptcy continues to pay the debt in accordance with the terms of the reaffirmation agreement.

Reaffirming a debt is not mandatory. But if the person filing chapter 7 bankruptcy decides to reaffirm a debt, one must do so before the discharge order is entered. Both the person filing chapter 7 bankruptcy and the creditor must sign the written reaffirmation agreement; the agreement must then be filed it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the disclosures must advise the person filing chapter 7 bankruptcy of the amount of the debt being reaffirmed and how it is calculated. The disclosure must also state that reaffirmation means that the person filing chapter 7 bankruptcy has personal liability for that debt and will not be discharged in the bankruptcy. The disclosures also require the bankruptcy filer to sign and file a statement of your current income and expenses which show 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.

If the person filing chapter 7 bankruptcy is represented by a bankruptcy attorney in connection with the reaffirmation agreement, the attorney must consider certifying in writing that the attorney has advised the bankruptcy filer of the legal effect and consequences of the agreement, including a default under the agreement. The attorney must also certify that the bankruptcy filer was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the filer or filer's household. The bankruptcy laws require a reaffirmation hearing if the person filing chapter 7 bankruptcy has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. The person filing chapter 7 bankruptcy may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists.

Once the discharge order has been entered, creditors may no longer initiate or continue any legal or other action to collect a discharged debt. But not all debts may be discharged in chapter 7. Debts not discharged include debts for alimony, child support, domestic support obligations, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the operation of a motor vehicle while intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. The person filing chapter 7 bankruptcy will continue to be liable for these types of debts to the extent that they are not paid in the chapter 7 bankruptcy case. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable.

The court may revoke a chapter 7 bankrutpcy discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud committed, if the person filing chapter 7 bankruptcy acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or failed to surrender the property to the trustee, or if you make a material misstatement of fact or failed to provide documents or other information in connection with an audit of your case.

In short, the person filing chapter 7 bankruptcy must be honest, fully disclose one's financial situation, provide the required documentation, and cooperate fully in all aspects of the bankruptcy case. In return, the person filing chapter 7 bankruptcy should be discharged of debts and be debt-free with a fresh start in life.

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