The following is an outline of select areas of bankruptcy law which are significant as you contemplate a filing under Chapter 7. Often, someone who considers bankruptcy is unaware of nuances of bankruptcy or certain creditors' rights in bankruptcy. You should be familiar with some of applicable provisions as you prepare for filing. What follows is not, by any means, an exhaustive review of bankruptcy law; nor does it fully explain each provision of bankruptcy code or rules which might apply because each individual's situation is unique and sometimes unanticipated events occur; however, this overview will provide you with broad guidelines so that you may be comfortable with your decision. I will begin with an outline of basic procedures in Chapter 7 case and conclude with a discussion of various Chapter 7 pitfalls.
Basic Procedure A. Upon filing, you will be required to file a sworn list of creditors, a schedule of assets and liabilities, a list of exempt property, a schedule of current income and expenditures, a statement of your financial affairs and a statement of intent regarding consumer debts secured by property of estate. You will also be required to surrender to trustee all property of estate. 11 U.S.C. 521. The order of relief is granted when you file. What this means, among other things, is that an automatic stay is triggered, prohibiting creditors from pursuing you or your property outside of bankruptcy proceeding.
B. The clerk of court will give notice of bankruptcy to your creditors. 11 U.S.C. 342.
C. There will be a meeting of creditors called to question you about your debts and ability to pay. The U.S. Trustee calls this meeting and you are required to attend. The judge may not question you at this time. Other creditors and trustee may question you. Unlike a trial, your attorney may not "object" to questions in a formal sense. It is an open opportunity for creditors to question you and you are required to respond in good faith. 11 U.S.C. 341.
D. A creditor of trustee assigned to your case may object to your listed exemptions within 30 days after meeting of creditors.
E. A creditor must file a proof of claim within 90 days after first date set for meeting of creditors. At end of case, if a surplus remains after all of claims are paid in full, court may grant an extension of time for filing of claims not filed during initial 90 day period.
The trustee may object to any claim.
F. An objection to your receiving a general discharge of all of your debts must be filed by thetrustee or a creditor within 60 days following first date set for creditors meeting If no objections are filed, and if no motion to dismiss is pending, court will ordinarily grant a discharge upon expiration of 60 day period. Bankruptcy Rules 4004 and 1017; 11 U.S.C. 727.
G. A creditor may object to dischargeability of a particular debt at any time if debt: (1) is for a tax or customs duty; (2) is not listed in schedules so that a creditor could file a proof of claim; (3) is related to alimony or child support; (4) is a government fine or penalty; or (4) is a government insured student loan. Any student loans guaranteed or insured by government will not be dischargeable. This means that you will continue to be liable for payment even if you file bankruptcy.
A creditor may object to dischargeability of a particular debt only within 60 days of first date set for meeting of creditors, if debt: (1) is a consumer debt created close to filing; (2) is a result of fraud; (3) is a result of a wilful and malicious injury to a person or property of another. Bankruptcy Rule 4007; 11 U.S.C. 523.
Debtor Pitfalls The debtor's goal in any Chapter 7 is to have as many debts discharged as possible. The general rule is that all debts created before bankruptcy filing are discharged. Discharge destroys any person liability you may have on a claim or debt. (Discharge will not destroy liens; liens survive bankruptcy.)
There are some very significant exceptions to general rule that all debts will be discharged. As stated above, a creditor can try to have his claim excepted from discharge pursuant to provisions of 11 U.S.C. 523. If claim is not discharged, debtor continues to be responsible for its payment; obviously, this could have severe consequences to debtor seeking a "fresh start" which is very purpose of Chapter 7 filing.