Chapter 7 Bankruptcy
The Bankruptcy Code is divided into eight chapters, three of which are most commonly filed: chapter 7, chapter 13 and chapter 11. The most powerful rule in bankruptcy is the Automatic Stay which goes into effect immediately upon filing a case with the court. The Automatic Stay prohibits creditor harassment, wage garnishment, law suits, foreclosures and repossessions upon filing. Exceptions to the Stay exist for repeat filers.
Chapter 7 bankruptcy provides for liquidation of assets to be distributed to creditors. The court appointed representative of the estate, otherwise known as the Trustee is designated to each ch. 7 case upon filing the petition with the court. The Trustee liquidates the Debtor(s) non-exempt property to cash and distributes the proceeds to creditors according to the Code's rules. In a ch. 7 "No Asset" case creditors will not receive anything after the debtor(s) exemptions are set aside. Pending no objections to dischargeability from creditors, the debtor(s) is discharged from liability for most unsecured debts. Certain debts are non-dischargeable such as:
- Debts for most taxes
- Debts incurred to pay nondischargeable taxes
- Student loan debt
- Domestic support obligations
- Debts for most fines, penalties, forfeitures or criminal obligations
- Debts for personal injuries or death caused by the debtor's operation of a motor vehicle while intoxicated
- Debts which are not properly listed by the debtor
- Debts for which the debtor has given up the discharge protection by signing a reaffirmation agreement in compliance with the Bankruptcy Code
- Debts owed to certain retirement plans
- Debts that the bankruptcy court has ruled in this case are not discharged
The timeline for a ch. 7 "No Asset" bankruptcy is generally a 90 day process. Once the case is filed, the court will generate a 341 Meeting of Creditors date to take place approximately 30 days from the file date. This is a mandatory meeting that is overseen by the Trustee. The debtor(s) creditors also have the opportunity to appear and inquire about debt incurred. The debtor(s) must then take the Financial Management Course or post-bankruptcy class within 45 days of the 341 meeting. The course is required for discharge and if not timely filed, the case will be closed without a discharge. If the Trustee determines the case to be a "No Asset" case, a Report of No Distribution will be filed. Once the deadline for objection to dischargeability has expired, the court will issue an Order of discharge and final decree. The case is then closed.