Chapter 7 bankruptcy of the Title 11 of the United States Bankruptcy Code, also known as a “liquidation proceeding,” is one of the most common forms of bankruptcy today. Generally speaking, such a proceeding is when a debtor relinquishes all non-exempt property to a bankruptcy trustee who then sells it for cash to distribute among the creditors. This is done as a means of relieving the debtor from any and all financial obligations that the debtor is simply unable to pay. Typically, the court process for a chapter 7 bankruptcy can last approximately 4-6 months.
The costs associated with filing for chapter 7 include a mandatory $ 245 case filing fee, a $ 39 miscellaneous administrative fee, and a $ 15 trustee surcharge. After filing a petition, these fees can be paid to the clerk of the court; however, in certain circumstances the court will permit individual debtors to pay these fees in installments. The court may even grant a fee waiver relieving an individual debtor from their obligation to pay these required fees if he or she can simply not afford to pay. A debtor who fails to pay these fees could face dismissal of their case.
The chapter 7 bankruptcy process begins with the debtor filing a petition for bankruptcy in a federal court. Along with this petition, the debtor must attach all necessary documentation illustrating his or her current financial situation. The Official Forms may be downloaded from the Internet at http://www.uscourts.gov/bkforms/index.html.
In turn, the court then assigns a bankruptcy trustee to handle the bankruptcy case from start to finish. The trustee is responsible for liquidating any non-exempt assets, distributing the proceeds to creditors and conducting the meeting of creditors. The trustee can be considered the middleman between the court and the debtor.
Upon filing a petition under chapter 7, a debtor can automatically stop most collection actions against the debtor or the debtor’s property through what is called an “Order for Relief”. This means that as long as the stop is in effect, creditors may not seek payment from the debtor. This is done when creditors receive a notice of the bankruptcy case from the court. However, any “secured debt” belonging to the debtor, which is property used as collateral for a loan, does not usually stop collection efforts from creditors if a debtor is behind on his or her payments.
The Meeting of Creditors, also known as the “341 Hearing” refers to the meeting between the trustee, debtor and creditors. The debtor must attend the meeting and answer questions honestly regarding his or her financial state of affairs. The trustee is also in charge of ensuring the debtor understands the overall nature of his bankruptcy petition including the outcome of the bankruptcy action. Soon after the creditors’ meeting, the trustee will report to the court whether the case should be discharged.
At the end of the bankruptcy process the court will issue a written notice to the debtor notifying him that he has been discharged of all debts. Those debts that usually survive bankruptcy, however, include child support, most tax debts, and student loans, and debts that the court has declared non-dischargeable because the creditor has objected.
A chapter 7 bankruptcy stays on an individuals credit report for 10 years from the date of filing the petition. In addition, a debtor also has the option of converting a chapter 7 case to a case under chapter 11, 12, or 13 so long as the debtor is eligible.