FAQs for Chapter 7 Bankruptcy, Timelines, Steps
When filing for bankruptcy, a person has the option to choose between Chapter 7 or Chapter 13. Each type has different rules, qualifications, processes, and effects on the filer’s debt. The most common between the two is Chapter 7 bankruptcy, which gives the debtor immediate relief and discharges most, if not all, of their debts. This is usually the best choice.
What is Chapter 7 Bankruptcy?
A lot of people consider Chapter 7 bankruptcy as a fresh start, considering that it eliminates the majority of the debt and gives the debtor a clean, financial slate. A Chapter 7 discharge can eliminate debts like credit cards, medical bills, and other loans. It offers immediate relief to the debtor, eliminating their financial struggles.
However, there are limitations to what Chapter 7 can eliminate. Secured debts, such as interests in a car or house, cannot be eliminated in a Chapter 7 bankruptcy unless the debtor gives up the collateral. If they want to keep the collateral, the debtor will have to continue paying their secured debt despite a Chapter 7 discharge.
Steps in a Chapter 7 Bankruptcy
1. Preparing Chapter 7 Bankruptcy Forms
The majority of the work in a Chapter 7 bankruptcy is at the beginning, where the debtor will need to prepare all their forms. A Chapter 7 form looks similar to a tax return and has about 60 to 70 pages containing questions about their financial circumstances.
In the form, the debtor will be asked to list down crucial information such as:
- Their assets
- Their debts
- Who they owe money to
- Their income
- Their expenses
This information needs to be disclosed to the court to determine if the filer is eligible for a Chapter 7 bankruptcy and what debts they will be able to eliminate. Basically, the court wants to make sure that there are no assets that the debtor can sell or extra income they can use to pay off their creditors. If they possess such assets or income, they will not qualify for a Chapter 7.
2. Reviewing the information provided
After filling out the form, the debtor should review them to ensure that everything is accurate. A bankruptcy lawyer can help in this phase to guarantee that there are no errors or misrepresentations in the form. This step is highly important because the debtor will be asked to sign under penalty of perjury that all the information is correct and accurate.
When the form is filed with the federal courts, they’re uploaded electronically, which officially files the Chapter 7 bankruptcy case.
3. Holding the 341(a) creditors meeting
Approximately 30 days after the case is filed, a Chapter 7 trustee will hold a 341(a) creditors meeting. This is usually done in person and is officiated by a trustee, who is a private attorney assigned by the government to oversee the debtor’s case. Because of Covid-19 restrictions, the 341(a) creditors meeting is now held electronically by video or by phone.
In this meeting, the trustee asks the debtor basic questions to confirm their identity and the accuracy of all the information in the Chapter 7 bankruptcy form. The goal is to ensure that everything is correct and that the debtor did not miss out on any detail in the bankruptcy petition. It’s also the time to request for changes should there be a need to do so.
Generally, the 341(a) creditors meeting takes only a few minutes, unless there are inaccuracies or errors in the bankruptcy petition.
4. Waiting period for objections
After the 341(a) creditor meeting has concluded, the case will undergo a waiting period, during which time the creditors listed will be notified of the case and can object to it in court. Objections are very rare but they are not impossible.
5. Discharging the debt
After the waiting period and the verification of the bankruptcy petition, the debtor undergoes a court process for the discharge. Here, the court issues an order that states that the debts are eliminated and discharged, which closes the bankruptcy case.
How Long Does a Chapter 7 Bankruptcy Last?
From filing the case to receiving a discharge, the whole process can take 4 to 5 months. Afterwards, the debtor will be on their way to the elimination of their debts and a fresh start financially.