A Chapter 7 Bankruptcy case begins with filing a petition with the court serving the area where the individual resides, or in the area where the individual has set up their principal assets.
- In addition to the petition, the individual must also submit:
- List of assets and liabilities
- List of current income and expenditures
- List of executory contracts and unexpired leases
- A statement of financial affairs
Once the petition is accepted, the individual will be assigned a case trustee who will require a copy of the most recently filed tax returns, including prior years that were filed after the case began.
- If the individual has primarily consumer debts, there are additional fining requirements:
- A certificate of credit counseling and a copy of any debt repayment plan developed during credit counseling, acquired within 180 days of filing for Chapter 7
- Evidence of all payment from employers, if any, received within 60 days prior to filing
- A statement of monthly net income and any anticipated increase in income or expense to occur after filing
- A statement of any interest the individual may have in federal or state-funded education or tuition opportunities
If married, it is possible to file jointly, but if a married individual chooses to file alone, courts still require all documentation from both husband and wife to make a final determination. In order to complete the official bankruptcy forms, the individual (and spouse, if married) must provide the following information:
- A list of all creditors, and the amount of their claims
- The source, amount, and frequency of the individual’s income
- A list of all the individual’s owned property
- A detailed list of the individual’s monthly living expenses including food, clothing, shelter, utilities, taxes, transportation, child care, prescriptions, etc.
Successful filing of a Chapter 7 Bankruptcy automatically stops most collection attempts against the individual and their property. As long at the filing is active, creditors will typically cease to initiate or pursue lawsuits, wage garnishments, and even demanding phone calls. A bankruptcy clerk contacts all creditors the individual has provided, and informs them of the Chapter 7 filing.
Within 40 days of filing a petition for Chapter 7 Bankruptcy, a meeting of creditors is assigned with a US bankruptcy trustee. The individual must attend the meeting and answer several questions under oath to determine the legitimacy of the claim. Within ten days, the US trustee reports to the courts about whether the case should be presumed legitimate.
The primary role of the Trustee, is to verify the accuracy of the information provided in the filer’s bankruptcy petition and schedules and to liquidate non-exempt assets (if any) for distribution to creditors. If all the individual’s assets are exempt, the trustee will file a “no asset” report to the court, and no distribution will be made. The large majority of Chapter 7 cases result in a finding of no assets to distribute creditors and the bankruptcy filer is allowed to keep their possessions, including their home and vehicles
Almost 99% of Chapter 7 Bankruptcy cases qualify to be discharged within the 60 to 90 days of the petition being filed. The only grounds for which a discharge is denied are:
- If a creditor issues a formal complaint, prolonging the process
- The courts find that the individual failed to provide accurate records of income and expenses
- The courts find the individual failed to give an accurate account for their loss of assets
- Individual committed a bankruptcy crime such as perjury, failed to obey a court order, fraudulently transferred, concealed, or destroyed property to prevent liquidation, or failed to complete an approved credit counseling course