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Chapter 7 bankruptcy is a liquidation proceeding.  If you have some non-exempt assets, they’re sold by the Chapter 7 trustee and the proceeds are dispersed to your creditors according to the priorities established in the Bankruptcy Code.  In most consumer cases, all assets are exempt.  There are, therefore, no assets to liquidate and no money to give out to creditors. Chapter 7 is normally the simplest and quickest form of bankruptcy.  It’s available to individuals, married couples, corporations and partnerships.

Before you’ll be allowed to file Chapter 7 bankruptcy you’ll have to pass means test.  The means test is a computation that compares your average income for the last six months, annualized, to the average income for households of the same size in your state. If your income is less than or equal to the state average income, you “pass” the means test and may file Chapter 7 bankruptcy.

You Commence by Filing a Chapter 7 Bankruptcy Petition

Your Chapter 7 bankruptcy is initiated by filing the official petition, schedules and statement of financial affairs. These forms require you to name all of your assets and all of your debts, along with some recent financial history.  This is the most important and most time intensive part of a bankruptcy filing.

It’s crucial that you list all of your creditors with accurate mailing addresses.  You must list all of your debts.  You must even list those debts that are’t dischargeable and those you plan to reaffirm.

You must also list all of your property, along with any debts guaranteed by that property, and the sale value of the property.  “Property” as defined by the Bankruptcy Code signifies “assets” or “possessions.”  It’s not confined to just real estate.

You must sign the schedules under penalty of perjury.  You then file the schedules with the bankruptcy clerk in the district in which you reside. 

After you file your Chapter 7 bankruptcy petition, all the following bankruptcy proceedings concern your situation as it existed on the date of filing.

The automatic stay moves into effect upon filing the petition.  The automatic stay creates a legal barrier to collection activities by creditors.  They can no longer contact you in an attempt to collect a debt.

The court then nominates a trustee and sends notice to all your creditors informing them that you’ve filed bankruptcy.  You’ll receive a copy of that notice simultaneously with the your creditors.

First Meeting of Creditors

You must appear at a meeting of creditors.  This is ordinarily called the section 341 meeting.  It takes its name from the section of the Bankruptcy Code that describes the meeting.  At the meeting of creditors, the trustee will interview you about your assets and liabilities.  Your answers are given under oath and carry the penalty of perjury.  Creditors can likewise question you about those issues, but they rarely do so.

After The First Meeting of Creditors

If you have several non-exempt assets, the trustee will take control of them. The trustee will sell the non-exempt assets and apply the income to the expenses of administering your case.  He’ll also parcel out any leftover funds to creditors with allowed claims.  Each claim is allotted a priority according to the Bankrtupcy Code.  Those claims are paid in order of the priority of the claims.  

The trustee may check out your income and expense schedule to determine whether you have sufficient money remaining after your actual living expenses to give something to creditors.  Any money you make after the case is commenced is yours.  It’s out of the reach of creditors who have dischargeable debts on the date of filing.

Normally, the sole responsibility you have after the 341 meeting is to cooperate with the trustee by supplying whatever information he calls for.

Receiving A Discharge

The trustee and your creditors receive a 60 day period of time following the 341 meeting during which they may dispute your right to a discharge generally or the dischargeability of a specified debt.  Unless a request to deny your discharge is filed, the order allowing the discharge of debts is issued by the court shortly after the 60 day period lapses.  If one creditor files a challenge to your discharge it doesn’t preclude or hold the entry of a discharge of the rest of your debts.

As a precondition to your discharge, you must finish a financial training course of study from an accredited provider. The class usually lasts for several hours.  A lot of official providers have online classes available. Your failure to take the course and file a certificate of completion of the course of instruction can result in your case being closed without the entering of a discharge order. The court may charge you a new filing fee to reopen the case, file the certificate and enter the discharge.

You can normally look for your discharge within 4-6 months of filing your case. The discharge touches dischargeable debts that existed at the commencement of your case.

Some debts do come through a Chapter 7 bankruptcy discharge.  They’re excluded from the discharge by law.  Those particular debts are taxes, child support, student loans, and liens.  If you reaffirm any debts they also come through the bankruptcy discharge.

Harvey L. Cox is a licensed attorney who runs a bankruptcy information site.  Please visit The Bankruptcy Info Center to get more quality bankruptcy information and tips.