|How Chapter 7 works
A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court. The petition should be filed with the bankruptcy court serving the area where the individual lives or where the business debtor has its principal place of business or principal assets. In addition to the petition, the debtor is also required to file with the court several schedules of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases. A husband and wife may file a joint petition or individual petitions. (Official bankruptcy forms can be purchased at a legal stationery store. They are not available from the court.)
In order to complete the official bankruptcy forms which make up the petition and schedules, the debtor(s) will need to compile the following information:
(1) A list of all creditors and the amount and nature of their claims
(2) The source, amount and frequency of the debtor's income
(3) A list of all of the debtor's property
(4) A detailed list of the debtor's monthly living expenses (i.e., food, clothing, shelter, utilities, taxes,
transportation, medicine, etc.)
Currently, the courts are required to charge a $155 case-filing fee, a $30 miscellaneous administrative fee, and a $15 trustee surcharge (a total of $200). The fees should be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments (limit four). The final installment must be paid no later than 120 days after filing the petition.
For cause shown, the court may extend the time of any installment, provided that the last installment is paid no later than 180 days after the filing of the petition. The $30 administrative fee and the $15 trustee surcharge may be paid in installments in the same manner as the filing fee. If a joint petition is filed, only one filing fee, one administrative fee, and one trustee surcharge are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case.
The filing of a petition under Chapter 7 "automatically stays" most actions against the debtor or the debtor's property. This stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even make telephone calls demanding payments. Creditors normally receive notice of the filing of the petition from the clerk.
One of the schedules that will be filed by the individual debtor is a schedule of exempt property. Federal bankruptcy law provides that an individual debtor can protect some property from the claims of creditors either because it is exempt under federal bankruptcy law or because it is exempt under the laws of the debtor's home state.
Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between the federal or state law packages of exemptions. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law. Legal counsel should be consulted to determine the law of the state in which the debtor lives.
A meeting of creditors is usually held 20 to 40 days after the petition is filed. If the United States trustee or bankruptcy administrator designates a place for the meeting that is not regularly staffed by the United States trustee or bankruptcy administrator, the meeting may be held no more than 60 days after the order for relief. The debtor must attend this meeting, at which creditors may appear and ask questions regarding the debtor's financial affairs and property.
If a husband and wife have filed a joint petition, they both must attend the creditors' meeting. The trustee also will attend this meeting. It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The trustee is required to examine the debtor orally at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy, including the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt.
In some courts, trustees may provide written information on these topics at the meeting or in advance to ensure that the debtor is aware of this information. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors.
In order to grant the debtor complete relief, the Bankruptcy Code allows the debtor to convert a Chapter 7 case to either a Chapter 11 reorganization case or a case under Chapter 13, as long as the debtor meets the eligibility standards under the chapter to which the debtor seeks to convert, and the case has not previously been converted to Chapter 7 from either Chapter 11 or Chapter 13. Thus, the debtor will not be permitted to convert the case repeatedly from one chapter to another.