The Chapter 7 Petition/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,
in particular what debtor(s) can expect to happen after filing a Chapter
7 Petition. At the outset let me say that 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 which substantively became due less than 3 years before the petition is
filed. Secured loans generally cannot be discharged, however, there are
exceptions to this principal, (see the article in this website entitled
"Chapter 13 petition"), and if the debtor(s) cannot afford to
continue making payments to a secured lender, the debtor generally has
the right to indicate or not indicate his/her intent to surrender the
property (depending on the collateral securing the debt), and, either
way, what is known as the "deficiency debt", which is any debt
that remains after the secured creditor sells or is given a credit for
the fair market value ("FMV") of the collateral, is discharged
along with all of the debtor(s) other dischargeable debts.
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The Chapter 7 petition must include all material assets owned by and all
secured and unsecured liabilities/debts owed by debtors, as well as a
schedule of all of the debtors' gross household income received in
the previous 6 months and the debtors' projected monthly gross and
net household income and expenses. Debtors will also have to satisfy the
Bankruptcy Code’s means test based on their entire gross household
income earned over the 6 months preceding the month in which the petition
is filed, the means test determines if potential debtors must file a
Chapter 13, as opposed to a chapter 7, petition and pay back a minimum of 25% of
their total, general, unsecured debt to their unsecured creditors (see
article in this website entitled "The Bankruptcy Means Test" - all prospective bankruptcy filers should speak to an experienced
bankruptcy attorney concerning the Bankruptcy Code’s means test
requirements as part of their consultation).
Debtors will be also able to reject or affirm any of their ongoing executory
contracts/contractual obligations, if they have any, at the time the petition
is filed. If the debtor's assets are all exempt (i.e. able to be protected),
as is the case with the vast majority of Chapter 7 debtor's, all unsecured
debts will be discharged pursuant to the Bankruptcy Court's discharge
order issued at the end of the case. Although the Chapter 7 Trustee and
creditors have the right to file an Adversarial Complaint against debtors
with the U.S. Bankruptcy Court claiming that their subject debt was procured
through the fraudulent or willful misconduct of the debtor, these complaints
are rare. As long as debtors accurately provide all of their financial
information at their consultation with an experienced bankruptcy practitioner,
the debtor's attorney should know if there is any real possibility
of this happening.
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, all debtors, including both a
husband and wife in the case of a joint petition, must appear and answer
questions under oath at their 341(a) hearing. If the debtor cannot speak
and understand English, the U.S. Trustee's Office will provide the
debtor with a competent interpreter. Currently, due to the COVID 19 pandemic
this hearing/the appearance may be held via telephonic conference or virtually
on the computer, by Zoom or Go to Meeting. Although each one of the debtor's
creditors have a right to show up and ask the debtor 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
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 usually perfunctory; e.g. the Trustee will likely ask if the debtor
expects to receive a significant amount of money in the near future; if
they had a right to file a lawsuit against any person or entity at the
time the petition was filed and general questions related to the information
in the petition. Debtor should also be prepared to answer common sense
questions concerning the debtor's good faith, such as what caused
the debtor(s) to have to file for Chapter 7 relief , how the debtor is
making ends meet if the petition shows a significant negative disposable
income and other common sense questions relating to confirmation of the
debtor's good faith.
Another common question asked by the Trustee is whether the debtor(s) used
any of his/her 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 credit card or any other debt when
the debtors 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 debtors.
If too much of this occurred the case could be referred to the US Trustee'
s Office which might potentially object to the debtor's right to receive
a discharge order by the Bankruptcy Court and (thereby defeat the purpose
of filing for bankruptcy protection). It should be noted that, depending
on the type of debt incurred, the Code provides for a presumption that
the debtor knew that he/she was insolvent (i.e. 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 or 13 petition. If a creditor
files a timely Adversarial Complaint against the debtor and the Bankruptcy
Court finds that the debt which is the subject of the adversarial complaint
was procured through the debtor's willful or fraudulent misconduct,
the debt will not be discharged by the Bankruptcy Court's Final Decree
or Discharge Order. As indicated above, this is extremely rare.
The Bankruptcy Court's Notice scheduling the 341(a) hearing sets the
deadline by when creditors would have to file any/all objections to their
debt being discharged, and the debtor's right to receive the sought
after Discharge Order. If there are no objections filed by the debtor's
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 to object expires. This is approximately
3 to 4 months after the case was filed and approximately 2 to 2 1/2 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.