Chapter 7 bankruptcy may be considered by persons facing serious debt and financial distress. One of the purposes of bankruptcy is to discharge certain debt and to provide an honest debtor a “fresh start.”
Eligibility for Chapter 7
Individuals, partnerships, corporations, and other business entities are eligible to file for relief under chapter 7. With certain exceptions, an individual is required to receive credit counseling from an approved credit counseling agency prior to filing. This credit counseling may be done over the internet.
The filing of chapter 7 bankruptcy petition puts into place the “automatic stay”. The automatic stay stops most collection activities against a person and his property. Certain types of actions though are not stay or the stay may only be in effect for a limited period in some situations. As long as the stay as in effect, creditors are prohibited from starting or continuing many types of collection actions, including starting or continuing lawsuits, garnishments and telephone calls demanding payment. The Clerk of the Bankruptcy Court provides notice of the filing of the case to all creditors listed in the bankruptcy schedules.
Between 21 and 40 days after the bankruptcy petition is filed, a creditor’s meeting – sometimes referred to as a “341 meeting” – is held by the chapter 7 trustee. In the majority of personal bankruptcy cases, no creditors attend. During the creditors’ meeting, the trustee and creditors may ask the debtor questions regarding his financial affairs and property. Bankruptcy Judges do not attend creditors meetings.
Chapter 7 Trustee
Upon the filing of a chapter 7 case, the U.S. trustee appoints a chapter 7 trustee to administer and liquidate any nonexempt assets. Assets that are “exempt” are not subject to administration by the chapter 7 trustee. A chapter 7 debtor is required to cooperate with the chapter 7 trustee and to provide any requested financial records.
A chapter 7 trustee may attempt to recover property that the debtor has transferred prior to the filing of the case under the trustee’s “avoiding powers.” The trustee’s avoiding powers include the power to set aside “preferential transfers” made to creditors within 90 days prior to the filing of the case and to pursue fraudulent transfers.
Chapter 7 Discharge
Subject to certain exceptions, a discharge releases the debtor from personal liability from most pre-bankruptcy debt and enjoins the creditors from attempting to pursue collection actions against the debtor. Certain types of debt are not dischargeable in bankruptcy, including debts for alimony, child support, certain students loan, and certain taxes. In addition, the discharge of a particular debt or the overall discharge may be denied under certain grounds.