- March 8, 2018
In my daily practice, I am often confronted by a stream of questions regarding Chapter 7 bankruptcies. This topic can be one of great mystery to potential filers, but it need not be. If you are a debtor who is contemplating a Chapter 7 bankruptcy, there is a wealth of information available – much of it for free – which will assist you in learning about this process, and making sound decisions. Below are some of the most common questions I receive, with accompanying answers.
Just what is Chapter 7 bankruptcy?
- While there is much that can be said about Chapter 7 bankruptcy (many whole books have been written on the subject), in a very general sense, Chapter 7 bankruptcy is a form of bankruptcy which allows a debtor to put an immediate stop to all collection activities, and ultimately, extinguish (or “discharge”) many or all of their debts.
How does Chapter 7 bankruptcy differ from Chapter 13?
- There are numerous differences between Chapter 7 and Chapter 13 bankruptcies. However, the primary differences of concern to most clients are as follows:
- Chapter 7 gives a debtor the opportunity to extinguish many or all of their debts, while Chapter 13 typically compels a debtor to set up payment plans with his or her creditors, and pay off the debts over the course of 3-5 years;
- Chapter 7 attorney’s fees are usually much lower than those for Chapter 13;
- Chapter 7 bankruptcies tend to be simpler, more straightforward, and last about 3 months, while Chapter 13 bankruptcies are often more complex, and, as stated above, can last from 3-5 years
Are there eligibility requirements for Chapter 7? What are they?
- There are eligibility requirements for Chapter 7 bankruptcies. Potential filers need to first take what is known as the “means test.” This will determine whether the debtor makes under the maximum income allowed to qualify for bankruptcy. The means test is in place to prevent potential abuse of the bankruptcy process by individuals who are trying to have their debts discharged, but are actually in a financial position to address or resolve those debts. Means tests vary by state, so be sure to use an appropriate test for your jurisdiction. Right now in Indiana, in order to qualify, a debtor must make about $45,000 or less for a one-person household, about $55,000 or less for a two-person household, about $65,000 or less for a three-person household, and about $75,000 or less for a four-person household. You can view exact totals (and see the limits for larger households) here: https://www.legalconsumer.com/bankruptcy/means-test/state.php?st=IN. Be aware that the income thresholds change from time to time in each state, so check your local laws to ensure that you are using the most up-to-date numbers.
What if I don’t qualify for Chapter 7 under the means test?
- If you do not qualify directly under the means test, then in most instances, you will have several remaining options. Some of those options might include: going through all of your information and making sure you have accounted for everything correctly, and then taking the means test again; finding additional exemptions that might make you eligible; filing for Chapter 7 anyways, with the increased scrutiny that comes with a failed means test; opting to file a Chapter 13 bankruptcy, instead; or, waiting until your situation changes so that you can pass the means test. Given the potential for complexity here and the uniqueness of each case, it would be a good idea to sit down with an experienced bankruptcy attorney to weigh your options in this situation.
How much does a Chapter 7 bankruptcy cost?
- There are several different expenses you’ll encounter with the typical Chapter 7 filing. The most common are the following:
- Chapter 7 court fees, which total $335 at the time of this writing;
- Two finance-related courses which are mandated as part of the process, which cost, in total, about $40;
- Attorney’s fees, which typically range from $500-$2,000;
- Other fees and costs that might crop up in a Chapter 7 could include costs to obtain personal or financial records from accountants, the government, etc.; copying and printing costs; travel or missed time from work, etc. However, the costs noted above will usually account for 90% of all the costs incurred in a typical Chapter 7.
How much do attorneys charge for Chapter 7 bankruptcies?
- As noted in Question #5, the fees of different attorneys can vary widely. Most bankruptcy attorneys will charge anywhere between $500 and $2,000, with the vast majority of those attorneys falling somewhere between $700 and $1,500. A minority of attorneys publish their pricing via websites or other materials, making it easy for potential clients to know their fees. Although most attorneys don’t do this (for a number of reasons), many do offer free consultations, where they will sit down with you, discuss the specifics of your case, and give you the fee they would charge for taking it on.
What is the process for a Chapter 7? How long does the process take?
- Each Chapter 7 is different, but in general, the process will look something like this:
- After signing on with your attorney, you will collect certain required items like tax returns, bank statements, etc., fill out several forms for your attorney, and take your required credit counseling course (estimated 2-4 weeks);
- Once you have everything collected and complete, you will return them to your attorney, who will then fill out your official forms and submit them to the court (1-2 weeks);
- Once your bankruptcy filing is submitted, the court will set what’s known as a “341 Meeting” or “Meeting of the Creditors,” which you will attend roughly 30 days after the filing of the petition (4-5 weeks);
- After the completion of your 341 Meeting, you will take another course – a financial management course – and submit that certificate to the court (1-2 weeks);
- Assuming all goes well during the 341 Meeting, the trustee will issue a clearance report, after which creditors will have about sixty days to object to the discharge of your debts (7-8 weeks);
- If no creditor objects to your bankruptcy, and the court does not find any issues, you should receive your discharge soon after the deadline for objection passes (1-2 weeks).
- Most bankruptcies, from initiation to discharge, last in total between 3-4 months.
What are “exemptions”?
- Exemptions are certain protections based in state or federal law, that determine what property you will be able to keep in a bankruptcy. Speak with an experienced bankruptcy attorney to find out what laws apply to exemptions in your local jurisdiction, and also to see what exemptions you might be eligible for.
If I file, can I keep my house?
- As with most questions in bankruptcy, the answer is, “it depends.” If you are buying your home, and are current on your mortgage payments, then typically it’s not too difficult to protect your home under one of the bankruptcy exemptions offered. However, if you’re significantly behind on your payments, protecting the home – while not impossible – is somewhat more difficult, and would depend on the specifics of your situation. Often the best solution for someone in that position is to file for Chapter 13, rather than Chapter 7. If you are renting your home, your chances of being able to stay in the home are typically very good.
Can I keep my car?
- In most situations, keeping a car is within the debtor’s power. Most debtors will be able to claim their car as an exemption under the relevant state or federal laws. Retaining a vehicle with an outstanding, active loan will require that you “reaffirm” the loan (i.e., notify the trustee and the lender that you intend to continue being obligated under the loan and making payments on it).
What else can I keep under a Chapter 7 bankruptcy?
- This will depend on your state’s particular bankruptcy laws. However, in many cases, some normal items of personal property (e.g. electronics, furniture, clothing) will be eligible for exemption. However, every situation is unique, so be sure to speak with an experienced bankruptcy attorney for more detailed information on your specific circumstance.
How will a Chapter 7 affect my credit?
- A Chapter 7 bankruptcy will likely have – at least in the short term – a heavy negative impact on your credit. Your credit score will likely see a significant drop, initially. However, many bankruptcy filers can begin to clean up their profiles and improve their scores in a reasonably short period of time. The use of secured debt and other tools can help in achieving this objective. Additionally, debtors who choose not to pursue bankruptcy, but rather elect to keep their debts open, run the risk of having those debts reported on their credit reports for years. This can be as damaging – if not more damaging – than actually filing for bankruptcy and having the debts discharged.
What is an automatic stay?
- An automatic stay is a “hold” that goes into effect after the filing of a bankruptcy petition. The automatic stay prohibits any creditor from taking collection activity against a debtor for a period of time, to allow the debtor some breathing room, and to allow the court and trustee time to sort things out on the debtor’s case.
What if I have lawsuits pending?
- Typically, if lawsuits against you are pending, they will be put on hold as a result of your bankruptcy’s automatic stay. No further hearings or other activity will be permitted while the stay is in place. You are required, however, to list any pending lawsuits in your initial bankruptcy filings.
Does Chapter 7 get rid of taxes?
- Generally, a Chapter 7 bankruptcy does not clear a debtor of tax obligations. However, there are some exceptions. Speak with an experienced bankruptcy attorney for more details on your specific situation.
Does Chapter 7 get rid of domestic obligations such as alimony and child support?
- Generally, a Chapter 7 bankruptcy does not clear a debtor of “domestic support obligations,” such as child support or alimony.
Does Chapter 7 get rid of student loans?
- Generally, a Chapter 7 bankruptcy does not clear a debtor of most student loan obligations. However, there are some exceptions. Speak with an experienced bankruptcy attorney for more details on your specific situation.
Are there any other types of debts that won’t be discharged under a Chapter 7 bankruptcy?
- Yes, the bankruptcy code lists a number of other debt types that are non-dischargeable, including restitution owed for breaking the law, and debts arising from a death or injury you caused as a result of intoxicated driving. Speak with an experienced bankruptcy attorney for more specific details regarding what cannot be discharged.
What does get discharged under a Chapter 7?
- Pretty much everything not categorized as non-dischargeable under the Bankruptcy Code. For most people, this would include credit card debt, debts arising from leases and contracts, medical bills, judgments, debts arising from most car accidents, etc.
What is a 341 Meeting or a “Meeting of Creditors”?
- A 341 Meeting, or “Meeting of Creditors,” is a meeting held between a trustee, the debtor who filed the bankruptcy, and any creditors named in the bankruptcy petition who wish to attend. The meeting is a chance for the trustee to dig deeper into your petition, learn about any issues of concern, or press you for answers to questions he or she may have about your situation. It is also, in theory, an opportunity for creditors to attend and ask you questions about your property, finances, etc. In practice, 341 Meetings tend to be quite short (ten minutes or less), with a trustee briefly going over major aspects of your bankruptcy filing, and checking for inaccuracies or questionable submissions. Creditors almost never show up to these meetings. Although red-flag issues in your filing could lead to a more in-depth interview, in most cases debtors get through with little problem, and are on their way within a few minutes.
What are the credit counseling and financial management courses?
- These are courses which bankruptcy filers are required to take over the course of the bankruptcy process. The first course is called the Credit Counseling Course, and it teaches debtors about the proper use and management of debt. This course must be completed before the bankruptcy filing is initiated. The second class is called the Financial Management Course, which helps debtors establish essential personal finance skills. This course must be completed within sixty days of the first date set for the Meeting of Creditors. Both courses are available online through various providers approved by the U.S. Bankruptcy Courts, and typically take about an hour to complete. The costs range from $10-$25 per course. A comprehensive list of approved courses can be found here: https://www.justice.gov/ust/list-credit-counseling-agencies-approved-pursuant-11-usc-111
What if I forget to list one of my debts?
- Debts left off of the initial petition can be added later by amending the creditor list.
Can I convert my Chapter 7 bankruptcy to a Chapter 13?
- In some circumstances (e.g., you have a sudden, substantial increase in income), yes you can. Speak with an experienced bankruptcy attorney for more specific details regarding a conversion from Chapter 7 to Chapter 13.
All legal references are made with respect to Indiana law. Please check the laws of your local jurisdiction if you live in another state.
The articles in this blog are for informational purposes only. No attorney-client relationship is established through the publication of these articles.
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- What is Chapter 7 and how does it work? ...
- What is a Chapter 7 discharge? ...
- Who is not eligible for a Chapter 7 discharge? ...
- Who may file under Chapter 7? ...
- How much does it cost to file under Chapter 7? ...
- Where is a Chapter 7 case filed?
- Credit card debt. As part of chapter 7 bankruptcy, your credit card debt is typically discharged immediately. ...
- Medical debt. ...
- Personal loans. ...
- Tax debt. ...
- Spousal or child support and alimony. ...
- Student loans.
Success Rate: Given that more than 99% of Chapter 7 cases are discharged, your Chapter 7 bankruptcy will likely be a success (so long as you follow the rules and don't commit fraud). Debt Survival: You may still have to pay certain debts, such as a mortgage lien, child support or alimony, once bankruptcy is over.What happens to most of your assets in a Chapter 7 bankruptcy? ›
Background. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.What questions do they ask at 341 meeting? ›
What Questions Will a Bankruptcy Creditor Ask at the 341 Meeting of Creditors? Your creditors will ask you questions about your present and past financial situation, business dealings, and property that you own.What do you say at a 341 meeting? ›
You Must Tell The Truth At The 341 Meeting Of Creditors.
Be prepared to raise your right hand, be placed under oath, and to tell the truth with an honest and open heart. The only wrong answer to a question from the trustee or a creditor is an untruthful answer.
The court may deny a chapter 7 discharge for any of the reasons described in section 727(a) of the Bankruptcy Code, including failure to provide requested tax documents; failure to complete a course on personal financial management; transfer or concealment of property with intent to hinder, delay, or defraud creditors; ...What debt Cannot be erased? ›
Key Takeaways. Types of debt that cannot be discharged in bankruptcy include alimony, child support, and certain unpaid taxes. Other types of debt that cannot be alleviated in bankruptcy include debts for willful and malicious injury to another person or property.What is the downside of Chapter 7? ›
The main cons to Chapter 7 bankruptcy are that most unsecured debts won't be erased, you may lose nonexempt property, and your credit score will likely take a temporary hit. While a successful bankruptcy filing can give you a fresh start, it's important to do your research before deciding what's right for you.What assets can you lose in Chapter 7? ›
- Additional home or residential property that is not your primary residence.
- Investments that are not part of your retirement accounts.
- An expensive vehicle(s) not covered by bankruptcy exemptions.
- High-priced collectibles.
- Luxury items.
- Expensive clothing and jewelry.
You must list all debts on your Chapter 7 bankruptcy schedules without exception—even if you think they won't get wiped out by your discharge. If you leave off a debt, you run the risk of remaining responsible for it.What are 2 consequences of filing Chapter 7 bankruptcy? ›
The consequences of a Chapter 7 bankruptcy are significant: you will likely lose property, and the negative bankruptcy information will remain on your credit report for ten years after the filing date.How long is credit ruined after Chapter 7? ›
A Chapter 7 bankruptcy may stay on credit reports for 10 years from the filing date, while a Chapter 13 bankruptcy generally remains for seven years from the filing date. It's possible to rebuild credit after bankruptcy, but it will take time.How bad is your credit after Chapter 7? ›
Generally, your credit score will be lowered by 100 points or more within two to three months. The average debtor will have a 500 to 550 credit score. It may be lower if the debtor already had a bad score before filing. In summary, your credit score won't be that great after Chapter 7.How fast can you recover from Chapter 7? ›
A Chapter 7 bankruptcy will generally remain on your credit report for 10 years. You can use that time to rebuild credit, including opening a secured credit card, consistently making on-time payments for utility bills, and using Experian Boost to ensure those payments are being reported to credit agencies.Do creditors ever show up at 341 meeting? ›
Creditors usually do not show up for this meeting. Any of your testimony will be recorded and used against you if there is a dispute. Your answers must be brief and direct.Can you spend money after 341 meeting? ›
Can You Spend Money After the 341 Meeting? Absolutely! Any money earned after filing for Chapter 7 bankruptcy is yours to do with as you like because post-filing earnings aren't part of the "bankruptcy estate" or bankruptcy case. You can keep it, spend it, or give it away.How do I prepare for a 341 meeting? ›
Tips for Attending Your 341 Meeting
On the day of the meeting, dress professionally and not too casually, as if you're attending a job interview. There are only a few things you'll need to bring, but they're essential to the meeting: Driver's license or government-issued ID card. Government issued social security card.
We always tell our clients to wear whatever they would wear on a typical day. There is no need to wear a suit to the creditors' meeting just for the sake of getting dressed up. However, if you wear a suit to work every day then wearing a suit to your creditors' meeting isn't a problem either.How do I know if my 341 meeting went well? ›
The bankruptcy trustee will conclude your 341 meeting of creditors when the trustee has no further questions, is satisfied with your supporting documentation, and has given creditors a reasonable amount of time to ask questions. You won't need to appear before the bankruptcy trustee at another hearing.
The Court enters an order discharging individual Debtors after all requirements are met, but no sooner than the last day to object to the Debtor's Discharge. This is usually 60 days after the 1st setting of the 341 Meeting of Creditors unless a motion is filed with the court to extend that time.What assets do they take in Chapter 7? ›
Chapter 7 bankruptcy is a type of bankruptcy filing that's commonly referred to as liquidation because it involves selling the debtor's assets in bankruptcy. Assets, like real estate, vehicles, and business-related property, are included in a Chapter 7 filing.Does Chapter 7 get rid of all debt? ›
Chapter 7 bankruptcy is a legal debt relief tool. If you've fallen on hard times and are struggling to keep up with your debt, filing Chapter 7 can give you a fresh start. For most, this means the bankruptcy discharge wipes out all of their debt.Can Chapter 7 be closed without discharge? ›
Closed Without a Discharge
Cases are closed without discharge when the debtor does not complete the required debtor education required as a condition of discharge. The court may also close your case without discharge if you failed the last step for getting rid of debt. Your filing may not have been filed timely.
If you meet the eligibility requirements, your lender may forgive either a portion or the entirety of the outstanding balances on your unsecured debt, potentially including credit cards, personal loans or medical bills. Debt forgiveness programs and their conditions vary by the type of forgiveness you're looking for.Can I keep one credit card if I file Chapter 7? ›
You'll likely have to give up all of your credit cards if you file for Chapter 7 bankruptcy, but you can start rebuilding your credit once your case is closed. Get debt relief now. We've helped 205 clients find attorneys today.What can you write off in bankruptcies? ›
Bankruptcy Can Wipe Out Credit Card Debt and Most Other Nonpriority Unsecured Debts. Bankruptcy is very good at erasing most nonpriority unsecured debts other than school loans. For instance, you can discharge unsecured credit card debt, medical bills, overdue utility payments, personal loans, gym contracts, and more.What should be included in a Chapter 7 bankruptcy? ›
File your forms: On your bankruptcy forms you'll list your property, exemptions, creditors, income, recent transactions and other financial information. If you have secured debts, you'll need to decide whether you want to pay off the debt, continue making payments or surrender the property to the creditor.What topics are included in Chapter 7 bankruptcy? ›
Chapter 7 bankruptcy focuses on liquidating your nonexempt assets, if you have any, to repay creditors before your remaining debt is discharged. The process can get rid of many types of unsecured debt such as credit card debt, medical bills, and utility bills.What are the priorities in Chapter 7 bankruptcy? ›
Chapter 7 bankruptcy allows liquidation of assets to pay creditors. Unsecured priority debt is paid first in a Chapter 7, after which comes secured debt and then nonpriority unsecured debt.
six months of paycheck stubs. six months of bank statements. tax returns (the last two years)Can I keep some debt in Chapter 7? ›
Often your secured debts can be discharged in Chapter 7 bankruptcy, which means you could get your home and auto loans discharged. However, if you want to keep your house and your car, you will need to continue making payments.What is an example of abuse of a Chapter 7 bankruptcy? ›
Anyone who files for Chapter 7 after failing the means test is doing so under the “presumption of abuse.” This means the court presumes you are able to pay a portion of your unsecured debt but you are choosing not to do so.What are the three most used chapters to declare bankruptcy? ›
- Chapter 9. This section allows municipalities to reorganize debt. ...
- Chapter 11. Also known as reorganization, Chapter 11 bankruptcy is for individuals — and, more commonly, businesses — to restructure debt. ...
- Chapter 12. Chapter 12 allows family farmers and fishermen with regular income to reorganize debt. ...
- Chapter 13.
If you file a bankruptcy case under Chapter 7, not all debts are eliminated (or "discharged") once the bankruptcy process is complete. Generally speaking, in a Chapter 7 proceeding, the following types of debts are not discharged: Debts that were not listed at the start of the case (or debts for unlisted creditors).