What happens in a Chapter 7 Bankruptcy?
A step-by-step summary of the events in a bankruptcy.
The Initial Consultation
Your initial consultation with the Law Offices of Patrick M. Hunter is a virtual meeting, usually by ZOOM, and will last two to three hours depending on how complex your case is. You will need to upload documents through a client portal before the initial consultation. We will help you understand the effect of bankruptcy on you, the upsides and the downsides. We will discuss your non-bankruptcy options. We will discuss fees and what the cost of bankruptcy will likely be for your situation. If you decide that you want to file a bankruptcy through our offices, then we will prepare a fee agreement. We will provide you with information to obtain your credit counseling. And we will collect the initial consultation fee of $200. You will not actually hire Mr. Hunter until you have signed the fee agreement and paid a non-refundable retainer amount. When you leave you should feel that you have made a well-informed decision as to what you are going to do.
Each debtor whose debt is primarily consumer debt must complete a credit counseling class within six months of the day the bankruptcy is filed. The class must be done by an authorized provider. You will be provided with brochures from various providers at the initial consultation. These classes are done either by phone or over the Internet. They take about two to three hours and cost from $30 to $60, depending on whether you are a couple or not and the provider. The certificate of completion is usually sent both to you and our offices and must be filed with the bankruptcy petition. Mr. Hunter will pay for that class through a provider selected by him, or you may take the class at your expense from any of the authorized providers.
Gather Documents and Complete Questionaire.
You will be asked to provide numerous documents to our offices and will need to complete a complete financial worksheet. either on paper or our online worksheet. The documents will include wage stubs and other proof of income for the seven months before filing, bank statements, tax returns, recent communications from creditors and collection agencies, monthly bills, copies of lawsuits and judgments, mortgages, car loan documents, titles to vehicles, recent appraisals, etc. We may also have you do a worksheet or answer questions where you list your debts and your assets, list your income and expenses every month, and fully describe financial transactions within the last year. Much of this information is necessary to prepare the bankruptcy petition and other information must be provided to the bankruptcy trustee.
The Bankruptcy Petition and Schedules.
Once the retainer has been paid and the worksheet and documents have been provided, the office will assign your file to one of our petition preparers who will then begin to prepare your bankruptcy petition from the information provided. If they need additional information or clarification they may call or send an email to you for that information. Usually, it will take one to two weeks to get the petition prepared, although if we need to file quickly we can complete the petition within several days of having all of the information. Patrick Hunter will review the petition, make any needed changes, and then make arrangements for you to review the petition for accuracy. You should review the petition carefully since you are the final check before the case is filed. Once you and Mr. Hunter are satisfied that the information is accurate, you will sign the petition and schedules attesting that the information is accurate under penalty of perjury. When our offices have these signature pages, the petition will be filed electronically.
The moment the bankruptcy is filed two things happen.
The automatic stay starts and
The legal ownership of all of the debtor's property becomes property of the bankruptcy estate.
The Automatic Stay
The bankruptcy laws prevent any creditor from attempting to collect their debt against the debtor. This is called the automatic stay. If for some reason a creditor does something in violation of the automatic stay (obtaining a judgment, seizing property or garnishing wages or accounts) that action can be undone by the bankruptcy court. If a creditor knowingly violates the automatic stay the court can sanction the creditor including an award of attorney's fees.
Bankruptcy Estate Created
When the bankruptcy is filed all of the property owned by the debtor legally becomes property of the bankruptcy estate. Eventually (30 days after the first meeting of creditors) the legal ownership debtors' exempt property will return to the debtor. If the trustee decides not to collect any of the property he will abandon the property and the legal ownership will return to the debtor, subject to any liens on the property, such as mortgages and car loans.
Within a few minutes of the bankruptcy being filed a trustee is appointed, the Judge is assigned and the first meeting of creditors is scheduled.
The trustee is not a judge. The bankruptcy trustee is the person who administers the bankruptcy estate. The trustee's job is to collect property that has value and is not exempt. This property, if any, is then sold and the money is distributed by the trustee to the creditors. The trustee does not have the direct power to deny a debtor a bankruptcy, although if the debtor does not cooperate with the trustee's lawful requests, the debtor might be denied a discharge. The trustee runs the first meeting of creditors which in Wyoming is done by ZOOM. In many cases, debtors never appear in front of a judge. In Wyoming, most court appearances are either by phone or virtual.
The First Meeting Of Creditors.
The first meeting of creditors(also called the 341 meeting) is held shortly (between 3 and 7 weeks) after the bankruptcy is filed. In Wyoming these meetings are all held virtually by ZOOM Wyoming schedules 8 of these meetings every hour, so usually these meetings last only a few minutes. The debtors must appear at the meeting and are placed under oath to answer questions concerning their assets and debts. The law also requires the presentation of two forms of ID, usually a driver's license and a social security card, these IDs must be provided by secure method to the Trustee before the meeting. The trustee will ask questions to determine what property might be taken and sold. Creditors can also appear at the meetings to the meeting and ask questions if they have any, however, it is rare for any creditors actually to appear. It is natural to be very nervous about this meeting since in most cases it is the only time a debtor has to appear. Most of the time there is nothing to worry about and such nervousness is usually not merited.
Financial Management Course
Within 45 days after the 341 meeting each Chapter 7 Debtor must file proof that they have completed a financial management course. Like the Credit Counseling class, this class must be taken from an authorized provider and is usually done online or over the phone. The object of this law is to teach debtors how to manage their financial affairs so that they do not again need to file a bankruptcy. Like the 1st Course, this class is paid for by Mr. Hunter.
The Trustee Administers the Estate
If the trustee decides that there is property that should be taken and sold the trustee will ask the debtors to physically deliver the property to the trustee or a trustee's representative, such as an auctioneer. Often the trustee will allow the debtors to buy the property from the trustee for the fair market value. The trustee may also request that the debtors pay money to the estate if there were non-exempt wages owed on the date of bankruptcy or money in bank accounts on the date of filing. Other property that is often taken are tax refunds which were due on the date of filing, sporting goods, investment accounts, real property that the debtor did not live in on the date of filing, and other non-essential, non-exempt property. If the trustee does take the property, then the trustee will require creditors to file proof of the amount which is owed. If a creditor does not file a timely proof of claim they will not be paid anything. The trustee then will distribute the money in the estate to the creditors. Some claims, such as child support and taxes are paid first, with the remainder divided up pro-rata to the unsecured creditors. Most Chapter 7 cases are no-asset cases where the trustee does not collect any property. In these situations, the case will close shortly after the discharge is entered.
Objections to Discharge, Lien Stripping, Reaffirmation Agreements
The 60 days following the first meeting of creditors is a critical time in the bankruptcy process. This is the period in which if a creditor or the US Trustee's office has any objection to you getting a discharge they must file such objection. Objections are rare and if there are any concerns about an objection being filed, the attorney probably has discussed these issues with the client. Reaffirmations must be filed within this period. In some rare cases, creditors might have liens on household goods or other exempt property which can be stripped. These lien-stripping cases are usually brought in this period. This is usually the period in which the trustee decides to administer the case or not. And of course, the debtor must take and file the financial management course during the 1st 45 days of this period.
Sixty days after the first meeting of creditors the discharge will be granted if no objection has been filed, and the Debtor has taken the Financial Management class. This is the golden ring of filing a bankruptcy. When the discharge is granted, the legal obligation to pay all dischargeable debt is eliminated. This is the financial freedom that you have sought. Congratulations!!! If the trustee is administering the case, there is still a responsibility to cooperate with the trustee, providing him with documents and turning over non-exempt property. If you refuse or fail to cooperate with the trustee, the trustee can still ask the court to revoke your discharge, and all the hard work you have done will be out the door, and you may never be able to rid yourself of your debt. So stay in touch with your attorney and make sure any address changes are provided. If a creditor contacts you after the discharge, contact your attorney.
Case is closed
When the trustee is done administering the case the trustee will report to the Court that the case can be closed. Shortly after that, the Court will close the case. You may not know that this has been done, especially if it is a no-asset case.