Chapter 7 Bankruptcy Process
Once a debtor has met with a bankruptcy attorney and has determined that they qualify for a Chapter 7 bankruptcy, the filing process may begin. Initially, your bankruptcy attorney needs the fees associated with the filing process which includes attorney’s fees that start from $1500 and go up to $3000, filing fee of $299 and class fees of $100 for each debtor.
Your bankruptcy attorney will also require a list of documents needed to complete the Chapter 7 petition and schedules. These documents include; title and registration to all vehicles, deed to all properties, 6 months of paystubs, 6 months of bank statements, 4 years of tax returns, financial retirement statements, divorce documents within 6 years (including child support orders), judgments/lawsuits filed w/in the previous year, current life insurance policies, and receipts for purchases over $600 in the previous 3 months
Once submitted, the debtor’s Chapter 7 petition and schedules will be completed within a 2 week period. During that time the bankruptcy lawyers and paralegal will contact debtor(s) to address any issues regarding the filing. In that time the debtor must take a mandatory Credit Counseling course (either online or telephonic). Once the class is completed the debtor must file the Certificate of Completion with the bankruptcy court. The debtor’s bankruptcy attorney can file the certificate electronically. Once the Chapter 7 bankruptcy petition and schedules are completed the bankruptcy attorney will review the documents with the debtor(s). Debtor(s) sign the documents under the penalty of perjury and the bankruptcy attorney files with the court. Debtor(s) must ensure that all creditors are listed, all assets are disclosed completely and income is accurate.
After the Chapter 7 bankruptcy is filed, and throughout the pendency of the bankruptcy, debtor(s) bankruptcy attorney will communicate with the Trustee assigned to the case to address any concerns.
Approximately 30-45 days after the Chapter 7 bankruptcy petition and schedules are filed debtor(s) must attend a mandatory 341 meeting of creditors. Debtor(s) will be given notice in the mail of the date and time of the hearing. Prior to the court hearing the Trustee assigned to the debtor(s) case will request documents from the debtor. Debtor(s) must ensure to submit these documents with the Trustee in a timely manner prior to their hearing. On the day of the hearing debtor(s) should appear early to meet with their bankruptcy attorney. The bankruptcy attorney will prepare them outlining the standard procedure and questions asked. It is vital that debtor(s) appear with their IDs and Social Security cards.
If debtor(s) fail to submit requested documents prior to the hearing or appear without an ID or Social Security card the Trustees may either dismiss their case or continue it to another time.
After the 341 meeting of creditors, debtor(s) have 45 days to complete the second mandatory Debtor Education course. Again, debtor(s) must file the certificate with the bankruptcy court. Approximately 60-90 days after the meeting of creditors the Bankruptcy Court will issue debtor(s) discharge. This discharge will come in the mail so it is important that debtor(s) keep their current address on file in the court. Upon receipt of the discharge paperwork the case is complete.
Taxes A Chapter 7 bankruptcy Trustee will not issue a debtor(s) discharge until taxes for the 4 years prior to filing are complete. Furthermore, if debtor(s) receive any tax refunds after their Chapter 7 bankruptcy has been filed those funds are subject to the bankruptcy estate and must be given to the Trustee. The Trustee may take the entire return, take a portion or send the entire amount back to debtor(s).
Debtors are allowed exemptions for the equity in their secured assets. The existence and amount of the exemption varies in each state. Debtors use the state’s exemptions where they have resided for 2 years consecutively prior to filing. If the debtor has not lived in one single state we use the state where they lived for a majority of the 180 days preceding the 2 year period. If this is difficult to determine the Federal Exemptions may be used.
In Arizona, debtors are allowed exemptions for their secured assets. For example, the homestead exemption is $150,000. This means that the equity in your primary residence is protected up to $150,000. This is the maximum amount whether the debtor is single or married. If the home’s value is more than this amount a trustee may sell the home at fair market value, pay off the note on the home, give the debtor their $150,000 and apply the remaining equity to unsecured debts. This exemption does not apply to any investment properties or second homes. All of the equity in these properties is not exempt and subject to the bankruptcy estate.
Single debtors are given a $5000 exemption for their vehicle and joint (married) debtors are given $10,000. The exemption cannot be taken on luxury vehicles like motorbikes, quads, boats and planes. Any equity in these vehicles will be liquated and applied to unsecured debts.
Exemptions also exist for assets beyond the debtor’s house and vehicles. Other important exemptions are:
$4,000 for household furnishings (Kitchen table/4 chairs: dining table/4 chairs (plus 1 for each dependant over 4), Living room: couch, chair, plus 1 chair per dependant, 3 coffee/end tables, 3 lamps, rug: 2 beds, plus 1 per dependant, bed table, dresser, lamp, bedding for each: pictures, oil Paintings and drawings made by debtor, family portraits, TV or stereo, radio, stove, refrigerator, washer, dryer, vacuum);
$150 in a single bank account;
$500 for clothing;
$500 for domestic pets;
$1,000 for engagement/wedding rings;
$100 for a watch;
100% of prepaid food and gas;
100% of retirement plans;
Lesser of $1,000 or 1.5 months of prepaid rent;
$20,000 of life insurance proceeds paid to a surviving spouse or child;
Several other exemptions exist that a bankruptcy lawyer can explain.
Discharge of debts
A Chapter 7 bankruptcy allows debtor(s) to discharge secured and unsecured debt obligations that they are unable to satisfy. Bankruptcy is the only sure shot way to relieve debtor(s) of their liabilities. Once the discharge is issued the creditors listed on the schedules may not sue debtor(s) or any debt related to the filing.
In today’s housing market many homes are valued under mortgage obligations resulting in debtor(s) paying inflated mortgage payments. In a Chapter 7 bankruptcy debtor(s) may voluntarily surrender a property and be protected against the debt. Deficiencies resulting from a home foreclosure may be included in a Chapter 7 bankruptcy. Home Equity Lines of Credit may also be discharged as unsecured debts. The same is true for deficiencies resulting from voluntary surrenders and repossessions of vehicles.
The main objective of a Chapter 7 bankruptcy is to relieve debtor(s) of any and all debt obligations that prevent them from caring for themselves and their families. Unsecured debts hinder debtor(s) with the inflating interest rates and late payment fees. Unsecured debts include credit cards, medical bills, pay day loans, lines of credit, signature loan, etc. These debts are fully discharged in a Chapter 7 bankruptcy, given significant debt was not accumulated in the previous 3 months.
Life After Bankruptcy
A big fear in bankruptcy is that life after the discharge is more difficult. Actually, the opposite may be true. Debtor(s) can reestablish credit as soon as they receive their discharge. The most promising technique is to ensure you house and car payments are on time. Furthermore, credit cards with low credit lines may be taken out and paid off each month.