For many people, the most daunting and frightening thing about filing for chapter 7 bankruptcy is not driven by what they know about the process, but rather about what they do not know. That is, they do not know what to expect — and so they fear and dread the worst.
To alleviate this anxiety, here is a general overview of what you can expect if you move ahead with a chapter 7 filing:
Pre-Bankruptcy Credit Counseling Course
Before you officially file with the court, you must complete a pre-bankruptcy credit counseling course. This course is delivered by various providers around the country, which are approved by the Department of Justice (or at the state level in Alabama and North Carolina, respectively) The course can also be taken online. Enrollment fees vary, but are typically below $50 (and some online courses are less than $20).
Once you successfully complete the course, you will receive a certificate that is valid for 180 days. During this period, you can petition for chapter 7 bankruptcy protection. If your certificate expires, you will need to re-take the course before petitioning.
Filing for Bankruptcy and Automatic Stay
When you file for bankruptcy, an automatic stay immediately goes into effect. This legally forbids creditors from commencing or continuing to pursue you for debts, and includes letters, phone calls, emails, wage garnishments, denial of service (e.g. the utility company shutting off your power, etc.). If a creditor still wants to pursue the debt, it must ask the court to lift the stay.
Submitting Documents to the Bankruptcy Trustee and the Creditor’s Meeting
The court will appoint a licensed bankruptcy trustee, who will contact you (or your attorney) so that you can provide required documentation, such as your tax returns, bank statements, and so on. The trustee will also schedule a meeting of creditors, during which they may ask practical questions about your financial situation. It is also likely that some or even most creditors will not attend. However, your attendance is mandatory.
Also keep in mind since the trustee works for the court and not for you, it is in your best interest to have your attorney attend the meeting with you to ensure that it is handled appropriately, and that you are treated respectfully by all parties — including creditors who sometimes need to be reminded of what they can and cannot legally do.
Follow-Up with Trustee
After the creditors meeting, the trustee may follow-up with you (or your attorney if you have one) for additional information. Another meeting of creditors may also be scheduled. However, in most cases this is not required — especially if you do not have a very high income, and your petition is a “no asset” filing (i.e. you do not have any property of value that can be liquidated to pay creditors).
Unsecured vs. Secured Debts
Part of what the trustee will focus on is your secured vs. unsecured debts. Generally speaking, a chapter 7 bankruptcy filing will wipe away all of your non-exempt unsecured debts. Exempt unsecured debts that you must still pay include court-ordered restitution from a criminal matter, child support, spousal support, and student loans (you can petition for relief of your student loan debt as part of a separate filing).
You are also responsible for paying secured debts if you wish to keep the assets in question, such as paying your mortgage to keep your home, paying your car loan to keep your car, and so on. However, given that you have filed for bankruptcy, debtors with whom you have secured debt may be more willing to negotiate terms that are more feasible (i.e. that you can reasonably afford to pay on an installment basis).
Debtor Education Program
Before you are discharged from chapter 7 bankruptcy — which in a no-asset situation can be within a few months of filing — you must complete a debtor education program. These are available in-person and online, and typically cost less than $50 (some online courses are under $10).
The course covers fundamental financial management topics like budget preparation, money management, how to wisely and safely use credit, consumer protection laws, and so on. When you pass the course, you receive a certificate that must be presented to the court.
The above is an overview of what the road ahead will typically look like if you proceed with a chapter 7 filing. However, keep in mind that your specific experience will be based on the unique details of your filing.
To learn more, and to ensure that you get the qualified representation throughout the process — and that you are treated professionally, fairly, respectfully, and all of your legal rights are protected — contact the Law Office of Charles H. Huber today.