Pursuing Bankruptcy under Chapter 7
Can I file? For the most part, when people seek out bankruptcy relief they are seeking the type of relief offered through chapter 7. To file, you must:
- Reside, be domiciled, or have property or a place of business in the United States (U.S.). A person does not have to be a U.S. citizen to file, nor live in the U.S., as long as they have assets in the U.S.
- You are able to file if you do not have a prior Chapter 7 discharge or it has been more than 8 years, or 6 years since a Chapter 13 discharge.
- Within 180 days before filing the bankruptcy petition, you must receive credit counseling briefing from one of the approved nonprofit agency that focuses on budget and counseling.
- Be subject to a means test to determine how your income compares to Arizona’s median income and whether or not you qualify to file under Chapter 7.
The credit counseling requirement is a one-hour long course available online that we can help arrange for you. During the course, the credit agency will prepare a budget that takes into account your income and expenses. From this budget, the non-profit agency will assess other possible options for living within your means, but in most cases, it will validate that there are not any real options that would provide the type of relief available through bankruptcy. In the extreme case that an individual is incapacitated (physically impaired or a mental illness that makes it impossible to make rational decisions around finances) or active duty in combat zone, the court may wave the counseling requirement.
If your income is more than the Arizona median, you will have to take a means test to verify if you are entitled to a discharge under chapter 7 by determining if you are able to make payments for unsecured debts which would then convert your petition into a Chapter 13 bankruptcy filing. There are some exemptions in having to be evaluated by the means test; if for example, your debts are not primarily consumer debts then you are exempt from the means test and if you are a disabled veteran who incurred the debt while on active duty or performing a homeland defense activity.
If your current monthly household income is less than the Arizona median income for a household of your size the assumption is that you pass the means test and are eligible to file a Chapter 7 bankruptcy.
All the above requirements have other limitations that may be applicable. An
Example of a situation is that you are not eligible to file a petition if, within the foregoing 180 days you were a debtor in a bankruptcy proceeding and your case was dismissed because you failed to follow orders of the court or knowingly failed to appear before the court when scheduled to do so, or you requested and received a dismissal for your bankruptcy case.
Please keep in mind that just because you are eligible to file a petition, this does not guarantee a discharge. However, we have never failed to receive a discharge for our clients.
The Papers Necessary to Start a Case
Filing in a chapter 7-bankruptcy case requires the submission of several documents that our office will help prepare and assemble. In the previous post, I shared the link with the free workbook and documents needed list, which will help us with this process. A typical package of bankruptcy paperwork is anywhere from 30-50 pages in length. After your paperwork is complete, you will need to review and sign all of the documents included in the package. The documents to file include the following:
- The petition, which is the pleading that actually starts the case
- A statement of the debtor’s Social Security number (or lack thereof)
- A list of names and addresses for all creditors and certain other entities (sometimes known as the mailing “matrix”)
- A certificate from an approved counseling agency that the debtor received a credit counseling briefing
- The debtor’s statement of financial affairs and schedules
- A statement of current monthly income
Possible additional documents could be forms such as:
- An application to waive the filing fee or to pay it in installments
- The means test calculation (included as a part of the statement of current monthly income)
- A statement of intention with respect to personal property securing consumer debts or personal property leases
- Any payment advices the debtor received in the sixty days before filing the petition
- A disclosure of attorney fees paid or promised
- Additionally, if you have an interest in an education savings account, a record of that interest must also be filed.
When situations arise that prompt the need for an immediate filing, there is an option for those facing this dilemma. Bankruptcy rules permit a debtor to put a case together with just a three-page bankruptcy petition, a certificate from the credit counseling agency that provided the debtor the required briefing (if there is not a request for deferral or waiver of the required), a statement of the debtor’s Social Security number, and a list of names and addresses for all creditors and certain other entities. The number of copies of these forms required is the same as in a bankruptcy in which all the forms are filed together. The filing must also include the filing fee, an application for waiver of the fee, or an application to pay the fee in installments. In the extreme case that this is a necessary route, we will work through this expedited process with you.
After filing, the court through a court mailing send out a notice to creditors to inform them of the stay and of the place and date for the meeting of creditors. The notice contains deadlines for creditors who wish to file claims, objections to exemptions, or objections to different aspects of your petition. The automatic stay puts a stop to attempts to collect by creditors against you or you property with respect to any claims. Attempts to collect from here on out will be handled by the bankruptcy courtroom. The stay allows for instant relief from the more stressful experience of debt by preventing the harassing phone calls, wage garnishment and repossession.
The meeting of creditors is when the trustee (person appointed by the court to administer your bankruptcy estate) and the creditors have a chance to go over your case and to ask you questions. This is usually set between 21-40 days after filing the petition and must occur at minimum 21 days after the notice. The meeting of creditors is the first and usually the only time in which you will be required to appear at a hearing. Prior to the meeting, the trustee will ask for additional documentation, such as your income tax return, current pay stubs, etc. in order to familiarize themselves with your case prior to the meeting.
The day of the meeting of creditors, you will need to present the following documentation:
- A government issued photo ID
- An original Social Security Card or a written statement that such a document does not exist
- Pay stubs or bank statements to verify your current income
- All pages of current statements from checking/savings and investment accounts covering the date of your petition to the present time
- Current records of monthly expenses
The meeting of creditors, although it sounds as though all the creditors you owe money to, will be present, this is rarely if ever the case. In the rare occurrence that a creditor is present, they will ask questions and perhaps try to convince debtors to enter into agreements we would advise against. For the most part, the meeting moves quickly and functions as a simple hearing between the debtor, your attorney and the trustee. The trustee will go over most of the information in the statement of affairs and schedules that you filed and inform you of the following:
- The potential consequences/effects of a bankruptcy discharge
- The effect a bankruptcy has on your credit history
- Your ability to file under a different chapter of the Code
- The effect of reaffirming a debt
Trustees will typically give this information in writing and authenticate that you have read it. It also relevant to note that the bankruptcy judge will not attend the meeting to prevent them from being influenced by any information that is shared at the meeting of creditors.
Following the meeting of creditors, hinges mostly upon whether or not you have assets that are not exempt or encumbered. Without a successful objection from a creditor or judge, you should be able to keep all the property that you claimed as exempt. Which mean that when you filed, we would designate in a list the properties we would like to keep outside the bankruptcy process. This is referred to as exempt and excluded property, which can include retirement accounts, education savings accounts, and personal property (clothing, furniture, a home or car). Like most things, there are limits on exempt property.
After the meeting of creditors, your creditors or the trustee is allowed to raise objections to property you are claiming as exempt or excluded. If there is no objection, then you are allowed to keep the property you listed as exempt in your filing.
Liquidation of Nonexempt Property happens when you have assets that are not exempt or are sufficiently valuable made worthy of liquidating; hence, they must be turned over to the trustee during or after the meeting of the creditors. In this case, the trustee will collect any property belonging to the bankruptcy estate that is not exempt or abandoned and liquidates the estate by converting it to cash. This can be done through private sale or public auction. The trustee must give 21 days notice before the sale to give you a chance to pay the value if you are able and wanting to do so.
Receiving a discharge happens after the trustee distributes “dividends” or your liquidated assets to your creditors who have valid claims (typically, in the order of priority according to the rules set out in the Bankruptcy Code). Once this is complete is you receive your discharge and commence your fresh start.
Our bankruptcy attorneys have decades of experience with Arizona Chapter 7 bankruptcies, so we encourage you to sit down with us to discuss your case. We can answer any questions you might have and give you the best advice to ensure you retain as much of your property as possible during your bankruptcy. Call our office to set up your consultation or you can also start here by filling out your contact information and we will initiate getting in touch with you.