Bankruptcy Process--Chapter 7
CHAPTER 7 Process**
(Time from filing to discharge: usually 4-5 months)
1. Mandatory Credit Counseling
For cases filed after October 17, 2005, you must obtain a certificate from an approved credit counseling agency before you can file your case. This costs between $0 and $50 and can usually be done quickly online. Your attorney will provide you with information on how to obtain this counseling.
2. File Petition, Schedules, and Statement of Financial Affairs With the Court
When these documents, which you have signed under penalty of perjury, are filed with the Court, you will be assigned a case number and this commences your case. In most cases, immediately upon filing your case, an injunction goes into effect stopping your creditors from taking any further action to collect or recover on any debt you owe without first getting permission from the bankruptcy court (which is only granted for specific purposes). This injunction is called the "automatic stay". For cases filed after October 17, 2005, the automatic stay is really "semi-automatic" because if you have a prior dismissed bankruptcy case in the past 12 months, or if certain other conditions are met, you may need to file a motion to get the court to impose the Stay.
3. Mandatory meeting with the Trustee
This occurs about one month after your case is filed. It is often referred to as the section "341(a) Meeting." It is a very simple meeting usually and only lasts a couple of minutes per debtor. See more details about this meeting.The Trustee is an independent person appointed automatically in all Chapter 7 cases by the United States Trustee's Office (an administrative branch of the U.S. Department of Justice). The Trustee's role is to liquidate (meaning, turn into cash) any non-exempt assets you have. The Trustee then distributes those funds to your creditors according to their statutory priority in the bankruptcy code. The Trustee also monitors your case and will refer any incidences of fraud to the F.B.I. The Trustee can also object to the granting of discharge in your case if he/she believes your case was not filed in good faith (such as you have too much excess income to file a Chapter 7) or if you have committed fraud in connection with your petition and schedules.
Most assets are exempt up to a certain amount. You should check with your attorney as to which, if any, of your assets are subject to being taken by the Trustee.
The Trustee does not represent you and the Trustee does not represent any creditor in your case.
4. Time for Objections By Creditors and Trustee
Your creditors have until 60 days after the date first set for your meeting with the Trustee to file a complaint objecting to the discharge of their debt, or to your entire discharge (see above). Grounds for doing this include fraud (such as incurring charges on a credit card that you did not intend or have the reasonable ability to repay at the time they were made), false statements on a credit application, fraud while acting in a fiduciary capacity, willful or malicious injury to a person or property of a person, and certain others. Creditors can seek an extension of time to file their complaint, but as long as they received notice of your bankruptcy case, they must either file their complaint, or a motion requesting an extension prior to the expiration of the 60-day period.
In most cases no objections are filed. However, if a creditor does file a complaint, there will be a trial. You will need to consult with an attorney at that point to decide whether you wish to defend the action, settle it, or just let it go to default judgment. Usually, the matter can be settled or even pre-empted.
The Trustee has until 30 days after the date first set for your meeting with him/her to file an objection to any exemptions you have claimed. Again, this is rare, but it can happen depending on the specific exemptions you need to use in your case. You should consult with your attorney about the likelihood of this happening in your case.
5. Financial Management Course
For cases filed after 10/17/05, you are required to complete a financial management course before receiving your discharge. In Chapter 7 cases, you must have completed this course (usually about 2 hours) and submitted the certificate of completion to the court no later than 45 days after the date first set for your meeting with the Trustee. If you fail to do this, you will NOT get a discharge. This course can also be done over the internet or by phone, and costs between $19 and $50.6. Discharge
The moment you've been waiting for! If nobody objects to your discharge within the 60 day period referenced above, and you have completed all the other requirements, then you will automatically get your Notice of Discharge in the mail shortly thereafter (usually within 2-6 weeks after expiration of the 60-day period). This notice basically provides that you are discharged from all dischargeable debts. Certain debts are not dischargeable, such as child support, alimony, certain taxes, student loans, and some others. If you are uncertain as to which of your debts will be discharged, you should consult with your attorney.The discharge applies to all dischargeable debts which you scheduled in your bankruptcy papers and which received notice of your bankruptcy filing. If a creditor did not receive notice, they MAY be able to reopen your case and still challenge the discharge of their debt later on. Whether they can do this depends on a number of factors, including what the basis of their discharge objection is, whether assets were distributed in your case, and a few others.
It is important to understand that the discharge has nothing to do with the Trustee's obligation to liquidate (i.e. sell) any non-exempt assets that you may have. Your case can remain open for years after your discharge if the Trustee is taking actions on any of your assets or seeking to recover preferential payments you may have made to creditors.
**Please note that the above are summaries and do not, by any means, cover everything that can and does occur in a given bankruptcy case filing. The summaries are specific to rules and procedures followed in the Central District of California. Moreover, it assumes that you are represented by an attorney, because it omits certain tasks and duties that will be performed throughout the process by your attorney.
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