202108.27
0

Filing Personal Bankruptcy

Chapter 7 “Liquidation” Bankruptcy Process and Procedures

In this guide designed for the debtor, you will find important information on chapter 7 bankruptcy.

Seeking the advice of a qualified attorney is strongly recommended because bankruptcy has long-term financial and legal outcomes. Misunderstandings of the law or making mistakes in the process can affect your rights. Court employees and bankruptcy judges are prohibited by law from offering legal advice.

Step 1:

With the help of an attorney, decide whether to file a bankruptcy petition at all, as well as determine under which chapter to file.

For purposes of chapter 7 and this guide, here is some general guidance as to who can and cannot file:

  • CAN FILE:

Individuals or married couples, a partnership, or a corporation or other business entity 11 U.S.C. §§ 101(41), 109(b)

  • CANNOT FILE:

– During the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court

– During the preceding 180 days, a prior bankruptcy petition was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens 11 U.S.C. §§ 109(g), 362(d)-(e)

– Within 180 days before filing, you are an individual or married couple who has NOT received credit counseling from an approved credit counseling agency 11 U.S.C. §§ 109, 111

Step 2:

If you are an individual (or husband and wife), receive pre-bankruptcy credit counseling from an approved credit counseling agency either in an individual or group briefing within 180 days before filing. 

Obtain a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling as individuals (or husbands and wives) must file these. 11 U.S.C. § 521

Step 3:

File a bankruptcy petition.

Hint: ALL Bankruptcy Forms are available for free here www.uscourts.gov/bkforms/index.html .  

Voluntary petition:

  • This is filed by the debtor utilizing Form Number B 101 of the Official Forms for individuals or Form B 201 for non-individuals.
  • The debtor also must file:

(1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b)

  • Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). 11 U.S.C. § 521
  • Individual debtors with primarily consumer debts must additionally file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. § 521
  • $245 case filing fee, $75 miscellaneous administrative fee, and $15 trustee surcharge à The fees must be paid to the clerk of the court upon filing or may, with the court’s permission, be paid by individual debtors in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8 If the debtor’s income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid. 28 U.S.C. § 1930(f)

Here is a list of some of the information you will need to start to collect for your attorney for Form Number B 101 (individuals) of the Official Forms:

Last 4 digits of your Social Security number or federal Individual Taxpayer Identification number

  • Any business names and Employer Identification Numbers you have used in the last 8 years
  • Chapter of the Bankruptcy Code you are choosing to file under
  • How you will pay the fee (1. Entire fee when you file your petition 2. Pay your fee in installments, which requires an application through Official Form 103A or 3. Request that your fee be waived by filling out and filing Official Form 103B)
  • If you have filed for bankruptcy within the last 8 years, name of the district in which you filed, date of filing, and the case number
  • Any bankruptcy cases pending or being filed by a spouse who is not filing this case with you, business partner, or an affiliate—name of the debtor, relationship to you, district, date, and case number, if known
  • If you rent your residence and your landlord has obtained an eviction judgment against you, you will need to fill out Form 101A
  • Whether you are a sole proprietor of any full- or part-time business and the name and location of that business
  • Report if you own or have any hazardous property or any property that needs immediate attention
  • Whether you have received a briefing about credit counseling
  • The kind of debts you have—consumer, business, and/or other
  • Do you estimate that after any exempt property is excluded and administrative expenses are paid that funds will be available for distribution to unsecured creditors?
  • Estimate of creditors that you owe (e.g. 1-49, 50-99, and so on)
  • An estimate of your assets worth (e.g. $0-$50,000, $50,001-$100,000, and so on)
  • An estimate of your liabilities (e.g. $0-$50,000, $50,001-$100,000, and so on)

Use the forms that are numbered in the 100 series to file bankruptcy for individuals or married couples. Use the forms that are numbered in the 200 series if you are preparing a bankruptcy on behalf of a nonindividual, such as a corporation, partnership, or limited liability company (LLC). Sole proprietors must use the forms that are numbered in the 100 series. Many courts require local forms. You should check your court’s website before filing any documents.

Step 4:

File a schedule of exempt property. This belongs in Step 3 because it is one of the schedules the debtor must file but it is important enough to merit its own step.

  • The debtor should consult an attorney to determine the exemptions available in the state where the debtor lives.

Step 5:

Meet the U.S. trustee and the case trustee.

  • The debtor will be made aware of the U.S. trustee as they play a major role in monitoring the progress of a chapter 7 case and supervising its administration.
  • When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. 11 U.S.C. §§ 701, 704

Step 6:

Filing a petition under chapter 7 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362

  • Speak with an attorney about the certain types of actions that filing a petition does not stay and the possibility that the stay may be effective only for a short time in some situations. 11 U.S.C. § 362(b)

Step 7:

“Means test”

  • The court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707(b)
  • To determine whether a presumption of abuse arises, all individual debtors with primarily consumer debts who file a chapter 7 case must complete Official Bankruptcy Form B22A, entitled “Statement of Current Monthly Income and Means Test Calculation – For Use in Chapter 7.”
  • If the debtor’s “current monthly income” is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $12,850, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $7,700.

Step 8:

Asset case or no asset case

  • If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases.
  • If the case appears to be an “asset” case at the outset, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. Fed. R. Bankr. P. 3002(c) A governmental unit, however, has 180 days from the date the case is filed to file a claim. 11 U.S.C. § 502(b)(9)

Step 9:

If asset case, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets.

  • Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets.

Step 10:

Distribution of proceeds from the sale of the debtor’s nonexempt assets to creditors

  • Under Section 726 of the Bankruptcy Code, there are six classes of claims; and each class must be paid in full before the next lower class is paid anything. The debtor is only paid if all other classes of claims have been paid in full.

Step 11:

Prior to the discharge being entered, “reaffirm” debt(s) by signing a written reaffirmation agreement and filing it with the court. 11 U.S.C. § 524(c)

  • Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to “reaffirm” the debt.
  • A reaffirmation is an agreement between the debtor and the creditor that the debtor 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 debtor continues to pay the debt.

Step 12:

Post-filing and pre-discharge debtor education

Debtor education must take place after you file and a certificate of completion is required before the filer’s debts can be discharged.

Step 13:

Discharge of debts

  • A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.
  • A discharge is ONLY AVAILABLE TO INDIVIDUAL DEBTORS, not to partnerships or corporations. 11 U.S.C. § 727(a)(1)
  • Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
  • DEBTS NOT DISCHARGED include:

– debts for alimony and child support

– 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 debtor’s operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances

– debts for certain criminal restitution orders. 11 U.S.C. § 523(a)

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  

Image Credit: Cowomen Unsplash.com