Bankruptcy FAQ
The Most Common Questions Asked About Chapter 7
The Most Common Questions Asked About Chapter 7
What is Chapter 7 and how does it work?
Chapter 7 is that part of the federal bankruptcy laws which permits a person to discharge most debts by filing a case in the bankruptcy court, turning non-exempt property over to a Trustee, and obeying the orders and rules of the Court. A person who files under Chapter 7 is called a Debor.
What is a Chapter 7 discharge?
It is a court order releasing a Debtor from all personal liability on discharegable debts and ordering Debtors' creditors not to collect or even attempt to collect from the Debtor. A debt that is discharged is one for which the Debtor's personal responsibility is eliminated and wich the Debtor does not have to pay. Some debts, however, are not eliminated by a Chapter 7 discharge, and some persons are not eligible for a Chapter 7 discharge.
What debts are not eliminated by Chapter 7 discharge?
The following types of debts cannot be discharged under Chapter 7:
What persons are not eligible for a Chapter 7 discharge?
Everyone is eligible for a Chapter 7 discharge except the following persons:
Any person who resides in, who does business in, or who has property in the United States may file under Chapter 7, except a person who has been involved in another Bankruptcy case that was dismissed on certan grounds within the last 180 days. It may not be wise, however, for a debtor to file under Chapter 7 if some of the debt will not be released by the Chapter 7 discharge. Also, the Court may dismiss the case of a debtor who has sufficient current income to repay a substantial portion of his debts (through a Chapter 13 payment plan).
How much does it cost to file under Chapter 7?
The filing fee, charged by the Bankruptcy Court, is $299.00 for either a single or joint case.
Where is a Chapter 7 case filed?
In the office of the Clerk of the US Bankruptcy Court in the district where you have lived or maintained your principal place of business for the greatest portion of the last 180 days. The State of Kansas constitutes one federal judicial district and anyone within the State can file their bankruptcy at any of the (3) bankruptcy courts (KC, KS, Topeka or Whchita), regardless of where they live in the state. The State of Missouri has (2) districts and prople who live in the western half of hte State ie greater Kansas City, MO, file in the Western District of Missouri.
Under what conditions should a husband and wife both file under Chapter 7?
Both husband and wife should file if some of the debts to be discharged are owed by both spouses. If both spouses are liable for some of the debt and only one spouse files, the creditors often try to collect from the non-filing spouse.
May a husband and wife file jointly under Chapter 7?
Yes. A husband and wife may file a joint petition under Chapter 7. Also, only one filing fee is charged for a joint case. A husband and wife may file jointly, even if they are in the process of divorcing, if both meet the residency requirements.
When is the best time to file under Chapter 7?
The answer depends on the status ofr the Debtor's dischargeable debts and the nature of his non-exempt assets. The Debtor should follow these rules:
How does filing under Chapter 7 affect lawsuits and attachments that have already been filed against a Debtor?
The filing of a Chapter 7 case Automatically stays or STOPS most lawsuits and attachments that have been filed against the Debtor. Within two (2) weeks after a Chapter 7 is filed, the Court will mail a notice to all creditors, collection agents and attorneys (provided by Debtor to Debtor's Attorney prior to filing) ordering them to refrain from any further action against the Debtor. Please Note: Debtor MUST provide all Creditors to us, any creditor not provided to attorney will not be notified by the Court. If the Debtor cannot wait this long, Debtor should ask the attorney to notify one or more of the creditors of the filing of this case. For example, if Debtor's house is scheduled to foreclosed on and sold on the courthouse steps. Any creditor who intentionally violates the Court's order may be liable to the Debtor for damages. Thos most common actions not affected by the filing of a Chapter 7 case are criminal (including bad checkd charges) and actions for the collection of alimony, maintenance or child support.
How does filing under Chapter 7 affect a person's credit rating?
It depends on the Debtor's credit rating prior to the bankruptch filing. If the Debtor has a poor credit rating, the bankruptcy filing can actually improve his credit rating because the bankruptcy discharge will eliminate most (if not all) of his/her debt. In addition, some financial institutions, especially credit card companies, openly solicit business from persons who have recently filed under Chapter 7, because the Debtor has improved their creditworthiness by being released from his/her obligation to pay previous debts. A Debtor can also qualify to buy a car the day after their Bankruptcy has been discharged.
Are the names of persons who file under Chapter 7 published?
When a Chapter 7 case is filed, it becomes public record and the name of the Debtor(s) may be published by some newspapers.
Are employers notified of Chapter 7 cases?
Employers are not notified when a Chapter 7 case is filed, unless the employer is listed as one of your creditors. However, it is possible the Trustee may contact an employer, seeking information as to the status of Debtor's wages at the time the case was filed. It is illegal for an employer to discriminate against a person as to employment because that person has filed under Chapter 7.
Does a person lose any of his legal rights by filing under Chapter 7?
No. Filing under Chapter 7 is not a criminal proceeding, and a person does not lose any of his civil or constitutional rights by filing.
May employers or government agencies discriminate against persons who file under Chapter 7?
It is illegal for either private or government employers to discriminate against a person as to employment because that person has filed under Chapter 7. It is also illegal for governmental units to discriminate against a person as to the granting of licenses (for example, driver's licenses), permits, and similar grants because that person has filed under Chapter 7.
Will a person lose all of his property if he files under Chapter 7?
Under federal bankruptcy law and the alws of the state of the debtor's residence, certain property is declared to be exempt and cannot be taken by a person's creditors, except those with a valid security interest (for example: a mortgage or a lien) on the exempt property. A Debtor is allowed to keep his unsecured exempt property in a Chapter 7 case, and must turn only the nonexempt property over to the Trustee. Generally, the Trustee will not even claim nonexempt property if it is of minimal value or is particularly difficult to sell. By planning ahead, it is usually possible to minimize the amount of nonexempt property that the debtor will have to turn over to the Trustee. The property that is exempt in a Chapter 7 case varies from state to state.
In MISSOURI, the Debtor can exempt the following property:
KANSAS, the following property is considered exempt:
There are numerous additional, miscellaneous exemptions. Keep in mind, in joint filing cases, each spouse is entitled to the above exemptions. For example, each spouse may exempt a motor vehicle.
Does a debtor have to go to court in a Chapter 7 case and what happens there?
The first, and usually only, court appearance is called a "Meeting of the Creditors" and is held 4-5 weeks after the case is filed. At this hearing the Debtor will be put under oath and questioned about assets, money, property, and debts by the Trustee. In most Chapter 7 cases, none of the creditors will appear in Court; but if one does appear they will be allowed to question the Debtor. In most cases, additional court appearances are rare. The meeting usually lasts thirty minutes to an hour.
What is a Trustee in a Chapter 7 case, and what do they do?
The Trustee is a licensed atorney and an officer of the Court, appointed to gather the Debtor's nonexempt property, convert it into cash and pay the money out to the proper creditors. In addition, the Trustee has certain administrative duties required of him in the case. The Trustee will swear the Debtor in at the Meeting of the Creditors and ask them questions about their assets, income and debts.
What are the Debtor's responsibilities to the Trustee?
The law requires the Debtor to cooperate with the Trustee in the administration of the case, including the collection by the Trustee of the Debtor's nonexempt property. If the Debtor does not cooperate with the Trustee, the case may be dismissed and the debts would not be discharged. This duty continues even after the discharge is granted. For example, failure to provide tax returns or to surrender a tax refund will result in a revocation of the discharge, In other words, you are not "home free" after the discharge is granted.
What happens to nonexempt property that the Debtor turns over to the Trustee?
It is converted into cash, which is later used to pay the administrative expenses of the Trustee and the claims of the creditors. The Trustee is permitted to pay himself a fee, which is based on a percentage of the amount collected from the Debtor.
What happens if the Debtor has no nonexempt property for the Trustee to collect?
If, from the Debtor's Chapter 7 forms, it appears that the debtor does not have any property, notice will be sent to the creditors, advising them that there are no assets from which to pay the creditors. If assets are later discovered, the creditors will be given a chance to file claims.
What do creditors with security interests in the Debtor's property do in a Chapter 7 case?
Creditors with valid security interests against the DEbtor's property are usually not permitted to foreclose on or repossess the property while the Debtor is in bankruptcy. If the Debtor is in arrears on a secured debt, the creditor must prove the validty of the its security interest and obtain a court order lifting the Automatic Stay before repossessing or foreclosing. The Debtor should not turn any property over to a creditor until a court order has been obtained, unless the Debtor voluntarily wishes to surrender the property. The Debtor is permitted to retain certain property even if there is a valid security interest in it (if Debtor continues to make payments to the creditor) or may redeem the secured property by a lump-sum payment to the creditor in the amount of the property's value, which may be less than the outstanding balance on the debt.
What do creditors without security interests (unsecured creditors) do in a Chapter 7 case?
If the Debtor has nonexempt assets, unsecured creditors may file claims with the Court within 90 days after the meeting of the creditors. The Trustee examines these claims and files objections to those that he considers improper. When the Trustee has collected all of the Debtor's nonexempt property and converted it to cash, and when the Court has ruled on any objections, the Trustee distributes the funds according to certain priorities. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors. If the Debtor has no nonexempt assets, the creditors are notified not to file claims and they will receive nothing.
May the Debtor keep any of the secured property in a Chapter 7 case without paying off the creditor?
A Debtor may retain certain mortgaged personal and household items, such as furniture, appliances, clothing and tools of trade without paying the creditor anything if the items are exempt and if the security interest against the property is not a purchase money security interest. A purchase money security interest is held by a creditor who was the original seller of the item(s) purchased (for example, Nebraska Furniture Mart). A non-purchase money security interest is held by a creditor who lends money and takes a security interest in property already owned by the Debtor ie collateral. A Debtor may also retain exempt property that is subject only to a judgment lien without paying the creditor anything. A Debtor may retain certain exempt items by paying the creditor only an amount equal to the value of the items (i.e. redeeming the property), regardless of how much is owed to the creditor. These matters are legally complicated and should be discussed with your attorney.
How can a person minimize the amount of money or property that he will lose in a Chapter 7 case?
A Debtor is required to turn over to the Trustee in a Chapter 7 case only the nonexempt property that he possessed at the time the case was filed. Many nonexempt assets are liquid in nature and tend to vary in size or amount from day to day (bank accounts). It is wise for the Debtor to engage in some negative estate planning in order to minimize the value or amount of these liquid assets on the day that the Chapter 7 is filed. By doing this, the Debtor will not be cheating or engaging in anything illegal; simply using the law to your best advantage.
Cash: Generally, the Trustee will claim the Debtor's liquid assets like cash, if the combined total of the nonexempt assets is over $1,000.00 on the date of the filing. Therefore, during the last few days before the case is filed, the Debtor should spend the surplus (for example: to buy groceries, household supplies, pay utilities, rent or other exempt property) and keep the receipts for the purchases in case the Trustee asks to see them. It is also ok for the Debtor to use his remaining cash to pay the attorney to represent the Debtor in the bankruptcy. It is ok to make payments of up to $600.00 to creditors whose claims the Debtor intends to continue paying after the case is filed. Warning: Payments totaling more than $600.00 within 90 days preceding the filing are considered a "preferential transfer" and can be recovered by the Trustee from the creditor. Payments should not be made to friends or relatives, as the Trustee may later be permitted to recover these payments.
Bank Accounts: It is not necessary to close your bank accounts before filing. But, the balance of each account should be as close to zero as possible. In addition, the number and total value of any outstanding checks which have not yet cleared the bank should also be close to zero.
Tax Refunds: Tax refunds are not exempt in KS, but MO residents may use one or both of their miscellaneous exemptions to protect their refund and become property of th eTrustee if they have not been received and spent by the Debtor prior to filing. If the Debtor is scheduled to receive tax refunds which when combined with other nonexempt assets exeeds $1,000.00 (combined), a chapter 7 case should not be filed until after the refund is received and disposed to reduce the value of the other nonexempt assets. Even if the case is filed before the end of the tax year, if the Debtor later receives a refund, the Trustee is entitled to the portion of the refund earned prior to the filing of the case. For example, if you file your case on September 30, the Trustee can demand that you surrender 75% of that year's refund to him, even though it won't be received until the following year. When possible, the Debtor should adjust his withholdings to reduce a potential tax refund to an amount the Trustee will not collect.
May a Utility company refuse to provide service to a Debtor if its bill for utility service is not paid?
If, after the Chapter 7 case is filed, the Debtor furnishes a utility company with a deposit or other security to insure the payment of future services, it is illegal for the utility company to refuse to provide future utility service to the Debtor, even if its bill for past utility services is discharged in the Chapter 7 case. It is usually advised to pay off these bills before filing, so the utility companies will not be notified of your bankruptcy and will not demand an additional deposit. If the debt is to a utility company which not longer provides you service, and probably will not in the near future, you should not pay them and discharge this debt.
What should a Debtor do if he moves before his Chapter 7 case is closed?
Debtor should immediately inform the attorney, so the bankruptcy court can be notified of the Debtor's new address. It is important that the bankruptcy court have the Debtor's current address so that notices and the final discharge order will reach the Debtor.
How is a Debtor notified that a discharge has been granted?
By mail. The Court will send the Debtor an "Order of Discharge." This form releases the Debtor from his dischargeable debts. It is mailed about four to six months after the bankruptcy was filed.
How long does a Chapter 7 case last?
A Chapter 7 case begins with the filing of the case and ends with the closing of the case by the Court. If the Debtor has no nonexempt property for the Trustee to collect, the case will most likely be closed shortly after the Debtor receives the discharge, usually within six months after the case is filed. IF the Debtor has nonexempt property, like a tax refund, for the Trustee to collect, the length of the case will depend on how long it takes the Trustee to collect the assets and perform his other duties in the case.
What is a Reaffirmation Agreement and How does it work?
A Debtor may repay as many discharged debts as he wished after filing under Chapter 7. By repaying one creditor, a Debtor does not become legally obligated to repay any other creditor. The only dischargeable debts that must be paid after filing are those for which the debtor and creditor have entered into what is called a Reaffirmation Agreement, and those for which the creditor has a security interest in property which the Debtor wishes to retain (like a Mortgage on the Debtor's homeor a lien on the Debtor's car). If the Debtor was represented by an attorney in negotiating the Reaffirmation Agreement, the attorney must file the agreement and a statement with the Court in order for the agreement to be valid. Unless a debt is covered by a vlid reaffirmation agreement or the Creditor has a security interest, a Debtor is not legally obligated to repay or continue repaying an discharged debts, even if the Debtor has made one or more payments on the debt since filing.
What should a person do if a creditor later attempts to collect a debt that was discharged under the Chapter 7 case?
When a discharge is granted, the Court enters an order prohibiting the creditors from later attempting to collect from the Debtor any debt that was discharged in the Chapter 7 case. If a creditor violates this court order, they may be held in contempts of the Court and fined; and may be liable to the Debtor for damages. If a creditor attempts to collect a discharged debt, the Debtor should give the creditor a copy of the Order of Discharge and inform them that the debt has been discharged. If the creditor persists, the Debtor should contact an attorney.
Does a Chapter 7 discharge affect the liability of other parties who may be liable to a creditor on a discharged debt?
A Chapter 7 discharge releases only the Debtor. The liability of any other party (for example: co-signor, guarantor, spouse) is not affected by a Chapter 7 discharge. The other party would also need to file a Chapter 7 Bankruptcy to be discharged from their liability on the debt.
What is the role of the Attorney for a Debtor in a Chapter 7 case?
The Debtor's attorney performs the following functions in the Chapter 7 case:
The fee paid to an attorney for representing an Debtor in a Chapter 7 case must be disclosed to the bankruptcy court and is subject to the Court's approval. The Court will allow the attorney to charge only a reasonable fee for representing the Debtor. It is normal for the Debtor's attorney to collect all of his fee before the case is filed.
The first thing to do is to call our office and speak with a knowledgable and friendly lawyer. After discussing whether or not filing a Chapter 7 Bankruptcy is the right solution, schedule an appointment to make payment, deliver income documents and creditor notices, interview client and complete petitions with the attorney. The documents we need you to bring to the office include the following: