Chapter 7 Process

Hackensack Bankruptcy Attorney

This article concerns substantive and procedural issues pertaining to individual debtor(s) filing for relief under Chapter 7 of the U.S. Bankruptcy Code and what debtor(s) can expect to happen after filing a Chapter 7 Petition. The end result of a successful Chapter 7 Bankruptcy Petition is that all general unsecured debts are legally discharged (wiped out) forever. This generally includes medical bills, credit card bills, personal loans, guaranteed business loans, etc. Certain types of debts that cannot be discharged include child support payments, student loans and recent income tax debt. Secured loans generally cannot be discharged, however, if the debtor(s) cannot afford to continue making payments to a secured lender, the debtor generally has the right to surrender the property and have any debt that remains after the creditor sells the collateral discharged along with all the debtor(s) other dischargeable debts.

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The Chapter 7 petition should include all assets owned and all liabilities owed by the debtor(s); i.e. a list of all of the debtor(s) secured and unsecured debts and a list of the debtor(s) assets include any monies the debtor(s) expect to receive in the near future. Debtor(s) have the right to reject or affirm their ongoing executory contracts, i.e., the debtor(s) ongoing contractual obligations the debtor(s) have at the time the petition is filed. If the debtor(s) assets are all exempt, as is the case in the vast majority of Chapter 7 petitions, all unsecured debts not procured through any fraudulent or willful misconduct by the debtor(s), will be discharged at the end of the case. The Chapter 7 Trustee and creditors claiming fraudulent or willful misconduct by the debtor(s) have the right to file an Adversarial Complaint against debtor(s) with the U.S. Bankruptcy Court. This is very rare.

Approximately four (4) weeks after the petition is filed, the Bankruptcy Court schedules the 341(a) Hearing. The 341(a) Hearing is also commonly referred to as the Meeting of Creditors, even though it is very rare for a creditor to appear at the 341(a) Hearing. All debtor(s), including both a husband and wife in the case of a joint petition, must appear and answer questions under oath at the 341(a) hearing. If the debtor(s) cannot speak and understand English, the U.S. Trustee's Office will provide the debtor(s) with a competent interpreter. Although each one of the debtor(s) creditors have a right to show up and ask the debtor(s) questions concerning their assets and liabilities at the 341(a) hearing, this is rare. In the majority of cases, the Chapter 7 Trustee, appointed by the Bankruptcy Court at the time the Chapter 7 Petition is filed, will ask the debtor(s) a series of questions pertaining to the debtor(s) assets and liabilities. Since debtor(s) assets usually fall well within the exemptions allowed by the U.S. Bankruptcy Code, the questions asked by the Trustee are mostly perfunctory; e.g. the Trustee will likely ask if the debtor(s) expect to receive a significant amount of money in the near future; if they are suing anybody or expect to be able to file a lawsuit against anybody in the near future, what caused the debtor(s) to have to file for Chapter 7 relief (to establish the debtor(s) good faith).

Another commonly asked question by the Trustee is whether the debtor(s) used any of the credit cards listed in their petition during the several months preceding the filing of their petition. The reason for this question is obvious. If a debtor(s) runs up a credit card or any other debt when the debtor(s) knew or reasonably should have known that he/she was insolvent, the Trustee or a creditor can argue that the debt which was run up during this time period constituted fraudulent conduct on the part of the debtor(s).

It should be noted that depending on the type of debt incurred, the Code does provide for a presumption that the debtor(s) knew that they were insolvent and that they would not be able to pay back the debt if the debt was incurred during a 70-90 day period preceding the filing of the Chapter 7 petition. If a creditor files a timely Adversarial Complaint against the debtor(s) and the Bankruptcy Court finds that a debt was procured through the debtor(s) willful or fraudulent conduct, the debt will not be discharged by the Bankruptcy Court's Final Decree or Discharge Order. This is extremely rare.

The Bankruptcy Court's Notice scheduling the 341(a) hearing sets the deadline by when creditors have to file any/all objections to their debt being discharged. If there are no objections filed by creditors or the Chapter 7 Trustee, the Bankruptcy Court will usually issue its Discharge Order and/or Final Decree within one to two weeks after the above referred to deadline. This is approximately two and one half months after the date of the 341(a) Hearing.

To learn more about how Chapter 7 works, call or contact a Teaneck bankruptcy lawyer from our firm today. We offer free initial consultations, quality services at competitive rates and effective representation.