When most people think about the word “bankruptcy,” they’re thinking about filing Chapter 7 bankruptcy. It’s the simplest kind of bankruptcy. It is also the most common kind of bankruptcy. But Chapter 7 can also be the most risky kind of bankruptcy. Most people file Chapter 7 bankruptcy with the expectation that, because they don’t have many assets or much money, it will be very easy, and will go through without a hitch. However, that is not always the case. 

Below is an outline of the most important steps that you need to know about filing Chapter 7 bankruptcy in 2021 before you actually file your petition. We recommend that you hire bankruptcy counsel to assist you in making any and all legal decisions. However, it’s also important for you to fully understand these steps for yourself.

Filing Chapter 7 Bankruptcy In A Nutshell

Bankruptcy law is made up of various federal statutes and rules that allow people and businesses to restructure their debts. Bankruptcy is exclusively under the jurisdiction of the federal court. The goal of filing Chapter 7 bankruptcy is for the person or company filing the bankruptcy, called the debtor, to fully disclose everything they own and all of their debts. These disclosures are primarily done through a long document called a bankruptcy petition. It’s the job of a person called a trustee to review the debtor’s disclosures and to confirm whether or not they are truthful and accurate. If there are any assets that can be sold to pay the debts, aside from those assets that are protected by state and federal laws called exemptions, the trustee must get to work selling those assets. In most Chapter 7 cases, however, the trustee does not find any “unexempt” property to sell, and the case is deemed a “no asset case.” In these kinds of no asset cases, the Chapter 7 debtor wipes away their debts without paying anything back to their creditors. 

Determining Your Eligibility

Filing Chapter 7 bankruptcy is an option available to both people and companies. People can successfully emerge from Chapter 7 with a court order wiping away their debts with a federal order called a “discharge order.” Companies, on the other hand, do not emerge from bankruptcy. Companies do not receive a discharge. Instead, they become simply a shell of a company that is no longer in existence, and has no real power to conduct business any longer. Companies that want to continue operating need to file Chapter 11 bankruptcy.

Those successfully filing Chapter 7 bankruptcy must be eligible under the “means test”. This is an aspect of bankruptcy law that prevents people from filing Chapter 7 if they are in a household with more income than the median household of their size in their state and county. If you are unable to qualify for a Chapter 7 using the simple version of the means test, you can look into what’s referred to as the “long form” means test, which is a more detailed version of the means test analysis. If you pass the means test, filing Chapter 7 bankruptcy is an option for you. If not, then Chapter 11 or Chapter 13 may be your next best option. In either instance, even if you do qualify for Chapter 7, there may be other important reasons to use Chapter 11 or Chapter 13 instead.

Completing Pre-Bankruptcy Credit Counseling

People who file for bankruptcy must first complete pre-petition credit counseling. This is generally an online course that you take on your computer or phone. You can also take it over the phone. The course usually takes about 1 hour.  It usually costs about $15.00, which you pay with a debit card, and can be completed using any authorized company. The course must be completed within 180 days of the bankruptcy filing. None of the information that you use in the course is provided to the bankruptcy court, the trustee, or to your bankruptcy counsel. Once you’ve completed the course, you must sign a certification of completion, which is filed with your bankruptcy petition.

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Filing The Chapter 7 Petition

Filing Chapter 7 bankruptcy really refers to the filing of a bankruptcy petition. Today, most bankruptcy petitions are electronically filed with the bankruptcy court using specialized programs that connect directly to the bankruptcy court’s electronic filing system referred to as CM/ECF. Electronic filing of documents is especially prevalent in 2021, since there is only limited in-person access to courts.

The petition itself is many dozens of pages long, and contains all of your personal and financial information, and requires disclosure of a lot of information. This information includes all of your creditors and co-debtors, who receive notice of the petition filing from the bankruptcy court once the petition is filed. While you cannot access a filed bankruptcy petition by “Googling” it, bankruptcy petitions are public record, and can be accessed by the public through a special website called PACER.

You are required to sign the petition in multiple places and, generally, to swear that everything you disclose is true and accurate to the best of your knowledge. While you can amend the petition to fix errors and to make additional disclosures. However, it’s highly recommended that you get the petition as close to perfect at the time you file it with the Court. You also want to ensure that your petition is true and accurate to the best of your knowledge in advance of your 341 meeting of creditors, which is where you will have to literally swear to that fact.

Attending The 341 Meeting

Bankruptcy law requires that all debtors who file for bankruptcy attend a 341 meeting of creditors. In 2021, 341 meetings of creditors are done by video or by phone. At this meeting, a trustee asks that debtor questions about their bankruptcy. Creditors can attend this meeting and ask their own questions, although they are generally limited to asking only a few questions at that meeting. People who file bankruptcy need to provide proof of their identification and proof of their social security number to the trustee. This usually means showing a driver’s license and social security card. In 2021, because the meeting is virtual, trustees may accept copies of these proofs along with a certification confirming the accuracy of those proofs rather than inspecting them in person.

Completing Post-341 Meeting Debtor Education

After the 341 meeting, you must complete yet another course, which is referred to as a “personal financial management” course, or more likely called “debtor education”. Just as with credit counseling, this course is taken online or on the phone, and should also cost around $15.00, payable with a debit card. This course usually takes about 2 hours to complete. None of the information that you provide to the company administering the course is shared with your bankruptcy attorney, with the trustee, or with the courts. Once you’ve completed the course, you must complete another certification that is filed with the bankruptcy court.

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Reaffirming Secured Debt

In filing Chapter 7 bankruptcy, most people will discharge and wipe away all of their debt. This debt can include debt owed on a car note. If a car note is discharged, the lender financing the vehicle will normally seek to repossess the car because of the bankruptcy, and will likely never provide monthly statements any longer. To address these issues, bankruptcy law permits “reaffirmation” of certain debts, which means to prevent them from being discharged. The bankruptcy court must approve debt reaffirmation, because it’s a big deal to keep a debt that you can otherwise get rid of. In these instances, you must prove to the bankruptcy court that keeping the debt will not result in a hardship. Simply put, the bankruptcy court does not want you to land back in bankruptcy for a debt that you could have discharged in the first place. Reaffirmation requires the filing of documents with the bankruptcy court requesting authorization, and may even require a court appearance.

Understanding Chapter 7 Trustee Notices

In a Chapter 7 case, the trustee calls the shots. Your case can remain open for months or years if your Chapter 7 trustee decides to take their time to investigate certain legal issues or to sell assets. However, in most cases, the Chapter 7 trustee simply wants to wrap up these cases where there is no money to be made for creditors. When this happens, the trustee will file a notice of “abandonment” of your assets, meaning that they are legally handing the assets back to you because they are not going to sell any of your assets. The trustee will also file a notice of “no assets”, which tells the bankruptcy court and all of your creditors that the trustee has located no assets to sell to make money to pay your creditors. Note that, however, unless and until the trustee abandons back your assets and tells the bankruptcy court that it hasn’t located any assets to sell, your case will remain open.

Obtaining A Discharge

Companies don’t receive Chapter 7 discharge. But for an individual who filed Chapter 7 bankruptcy, this is likely the reason they filed bankruptcy in the first place. A federal discharge order is a permanent ban on creditors collecting dischargeable, pre-petition debts. Credit cards, medical bills, and even certain taxes can be wiped away with a discharge order. Other debts, such as certain governmental fines, are not discharged in filing Chapter 7 bankruptcy, but may be discharged using the “super discharge” provisions of Chapter 13. In any instance, a discharge order is a huge step towards financial independence and restoration of your credit score. 

Post Filing Chapter 7 Bankruptcy

Once you have received your discharge order, your case should close up soon after. Once your case is closed, you’re free to obtain credit, and to run your own affairs. Of course, you should avoid the issues that necessitated bankruptcy in the first place. However, if you ever needed to file bankruptcy again in the future, you may be able to do so after a certain time has passed between your first case and your subsequent bankruptcy case. These time frames differ depending on the Chapter of your first case versus your subsequent case. With any luck, however, you will have completed your first and only bankruptcy case, and come out on the other side in a much better financial situation than when you started!

Filing Chapter 7 Bankruptcy with Help from Middlebrooks Shapiro

Looking for guidance on filing Chapter 7 bankruptcy? The experienced attorneys at Middlebrooks Shapiro specialize in all chapters of personal bankruptcy and business bankruptcy, as well as mortgage loan modification. For help successfully navigating the intricacies of filing bankruptcy in 2021, schedule a consultation with one of our team today.