Bankruptcy in Brief
a service of the Moran Law Group
Chapter 7 bankruptcy is a liquidation proceeding in which the debtor's non-exempt
assets, if any, are sold by the Chapter 7 trustee
and the proceeds distributed to creditors according to the priorities
established in the Code.
Eligibility to file Chapter 7 is determined by the means
test instituted with the 2005 amendments to the bankruptcy code.
In most consumer cases, all the assets are exempt,
and therefore there are no assets to liquidate and there is no dividend
to creditors. Chapter 7 is generally the simplest and quickest form
of bankruptcy and is available to individuals, married couples, corporations
Filing Chapter 7
The case is begun by filing the official petition, schedules and
statement of financial affairs. These forms prompt you to list all of your assets
and all of your debts, along with some recent financial history. This is the most important and most time consuming part of a
It is important that every creditor is
listed in the
schedules with an accurate mailing address. You must list all of your
debts, even if the debt is non
dischargeable or if you intend to reaffirm
The schedules also list your property, any debts secured by that property,
and the sale value of the property. "Property" here
means "assets" or "possessions", not just real estate.
More on property in bankruptcy. Your choice
is made on one of the schedules.
The schedules are signed by the debtor under penalty of
The schedules are filed with the bankruptcy clerk in the district in which
you live, or have lived for the greater part of the last 180 days.
For most purposes the rights of the debtor and the creditors are those that
exist on the day the case is filed. All of the proceedings in bankruptcy
after the filing relate to the situation as it was on the day the case was
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stay goes into effect upon filing the petition, creating a legal
barrier to collection actions by creditors.
The court appoints a trustee
and gives notice to all
creditors listed in your schedules that you have filed bankruptcy. You
will get a copy of that notice at the same time it is sent to creditors.
The debtor must appear at the "first
meeting of creditors" (also called the § 341 meeting
from the section of the Code that describes the meeting.) The
trustee can ask the debtor questions under oath about assets and liabilities.
Creditors can also question the debtor on those subjects, but
After the first meeting of creditors
If there are assets which are not exempt,
the trustee takes control of those assets. From the sale of assets
or the recovery of avoidable
transfers, the trustee pays the expenses of the administration of
the case, then distributes any remaining funds to creditors with allowed
claims, according to the priority
of the claims.
The trustee may review your income and expense schedule
to see if you have enough money left after your current living expenses to pay
something to creditors. More on
Any wages the debtor
earns after the case is begun are the debtor's, beyond the reach of creditors who had
dischargeable claims on the date of filing.
Generally, the only responsibilities the debtor has with respect
to the bankruptcy after the 341 meeting is to cooperate with the trustee in providing any
information requested by the trustee.
Debtors are expected to perform on their expressed intentions to either
return, redeem or reaffirm debts secured by personal property.
More on your choices for secured debts.
Getting to discharge
Creditors and the trustee have a 60 day period from the 341 meeting
in which they may challenge the debtor's right to a discharge (Bankruptcy
Code § 727) or the dischargeability of a particular debt (Bankruptcy
Code § 523 (a) (2), (4), (6),and (15)) by filing an adversary
Unless an action to deny the debtor a discharge is filed, the
order providing for the discharge of debts is issued by the court shortly
after the 60 day period expires. The filing of a contest to the
discharge of one debt does not prevent or delay the entry of a discharge
of the balance of the debtor's debts.
Debtors in cases filed after 10/17/05 must complete a course of financial
education from an approved provider in order to get their discharge.
The class is generally several hours and is available online from several
Failure to get the class and file the certificate of completion of
that class can result in the case being closed without entry of a discharge.
The court may charge a new filing fee to reopen the case, file the certificate
and enter the discharge.
More on denial of discharge.
Individual debtors get their discharge within 4-6 months of filing the case. The
discharge affects dischargeable debts that existed at the commencement of the case.
Corporations and partnerships don't get a bankruptcy discharge.
What debts are dischargeable in Chapter 7
What does it mean to be
After the discharge
Certain debts survive a Chapter 7 bankruptcy because they are
excepted from the discharge by law: priority taxes,
support, student loans, and liens
are among the kinds of debts not discharged in Chapter 7. Any debts that were reaffirmed also
survive the bankruptcy.
Secured debts after bankruptcy
Ideas on rebuilding credit.
Find out what liens can be avoided
What does the discharge mean?