Chapter 7 Bankruptcy
How does a Chapter 7 case operate?
In a Chapter 7 bankruptcy action, a trustee is appointed to collect and oversee your property. The value of any property you are not able to protect through federal or state exemptions is sold and/or turned over to the trustee to pay your creditors. By and large, however, most consumer Chapter 7 bankruptcy actions are “no asset” cases wherein the trustee appointed reviews your written petition, schedules, and statements filed with the Bankruptcy Court and questions you under oath at a brief “341 Meeting of Creditors.” In such “no asset” Chapter 7 cases, you do not lose any property, and you receive a discharge in bankruptcy at the end of the process.
What is a discharge?
A discharge is a court order which states that you do not have to pay most of your debts. Creditors cannot ask you to pay any debts which have been discharged. A discharge only applies to those debts that arose before the date you file your bankruptcy petition. Some debts, however, cannot be discharged. For example, you cannot discharge debts for
- Most taxes;
- Child support;
- Alimony and/or obligations under a divorce/marriage/separation agreement;
- Most student loans;
- Court fines and criminal restitution;
- Personal injury caused by driving drunk or under the influence of drugs.
Your discharge may be denied by the Bankruptcy Court for certain conduct, including destroying or concealing property; destroying, concealing, or falsifying records; making a false oath; or omitting assets. Accordingly, it is imperative that you list all of your assets and debts in any bankruptcy filing and that you answer all questions accurately and honestly.
How long will my bankruptcy discharge impact my credit?
A bankruptcy filing can appear on your credit report for as long as ten years. Thus, the filing of a bankruptcy petition may affect your ability to obtain credit in the future. In most cases, a discharge order will not preclude you from obtaining any form of credit post-bankruptcy.
Do I need to appear before a judge?
No. In most Chapter 7 bankruptcy actions involving consumer debts, you do not need to appear before a bankruptcy court judge. Most debtors are required only to attend and participate in a “341 Meeting of Creditors” with their attorney. This Meeting is located in the County in which the Debtor resides or in an adjacent county, and it is usually scheduled within 6 to 8 weeks after you have filed your bankruptcy petition. A typical Meeting lasts for 10 minutes and involves answering approximately 15 questions under oath posed by the trustee appointed in your case.
How long does a Chapter 7 bankruptcy case last?
5 months. A typical Chapter 7 no asset case takes 5 months to administer from the date of filing of your bankruptcy petition through the date you receive your discharge order, and the bankruptcy judge enters a separate order closing your case. Chapter 7 asset cases typically take longer to administer, but most debtors receive their discharge order months before the case is actually closed.
Will I be able to keep my house and/or car?
Yes, in most cases. If you own your home subject to a mortgage loan and any equity you have in the home is within federal or state exemption limits, you will be able to retain your residence and continue to make your mortgage payments. If you own your home subject to no mortgage loan, or, if you are behind on mortgage payments, or, if the equity in your home exceeds applicable exemption limits, a Chapter 13 bankruptcy action may be more appropriate for your financial needs. If you own a vehicle subject to a loan, you will, in most cases, be able to retain it and continue to make the loan payment on it. Some vehicle lenders, though, may ask that you sign a Reaffirmation Agreement.
What is a Reaffirmation Agreement?
A Reaffirmation Agreement is a legally enforceable document filed with the Bankruptcy Court and signed by both you and an individual creditor. In such an Agreement, you promised to repay all or a portion of the debt that may otherwise be discharged in your bankruptcy case. Reaffirmation Agreements are strictly voluntary, and they must not impose an undue burden on your or your dependents. Whether or not you enter into any Reaffirmation Agreement should be discussed in detail with your counsel, based upon the specific financial circumstances in your case.
Can I keep one credit card account open even if I file for bankruptcy?
No. The filing of a bankruptcy action typically results in the closure of all of a debtor’s unsecured credit card accounts and/or credit lines. You cannot “pick and choose” what debts you want to list in a bankruptcy filing, and you must identify to your counsel and list all of your debts on the applicable bankruptcy schedules.
Can I repay a debt discharged in bankruptcy?
Yes. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay.
Can I file a Chapter 7 bankruptcy action now if I received a discharge in bankruptcy in the past?
Yes. However, you can only receive a Chapter 7 discharge one time every eight years.