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STEP 1 > OF 3 | HOW CHAPTER 7 WORKS
A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives (or where the business debtor is organized or has its central place of business or principal assets).
In addition to the petition, the debtor must also file with the court:
Individual debtors with mostly consumer debt have additional document filing requirements- They must also file:
A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives (or where the business debtor is organized or has its central place of business or principal assets).
In addition to the petition, the debtor must also file with the court:
- Schedules of assets and liabilities;
- A schedule of current income and expenditures;
- A statement of financial affairs;
- A schedule of executory contracts (contracts that have yet to be fully performed) and unexpired leases.
Individual debtors with mostly consumer debt have additional document filing requirements- They must also file:
- a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling;
- evidence of payment from employers (if any) received 60 days before filing;
- a statement of monthly net income and any anticipated increase in income or expenses after filing;
- a record of any interest the debtor has in federal or state qualified education or tuition accounts.
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If you are currently married...
A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors. However, If a joint petition is filed, only one filing fee is charged.
*Debtors should be aware that failure to pay the fee may result in dismissal of the case.
In order to complete the forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:
- A list of all creditors and the amount and nature of their claims;
- The source, amount, and frequency of the debtor's income;
- A list of all of the debtor's property; and
- A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household's financial position.
Property Exemptions
Among the schedules that an individual debtor will need to file is a schedule of "exempt" property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's home state (Michigan). In the vast majority of Chapter 7 filings, debtors are able to “exempt” all of their property, thereby allowing them to keep all their property.
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"Many states have taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or the exemptions available under state law. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law." |
Filing a petition under Chapter 7 "automatically stays" (stops) most collection actions against the debtor and/or the debtor's property – including foreclosures. However, filing the petition does not stop certain types of actions (including payment of child support, criminal actions and others) and in some situations, the stay may only be effective only for a short time. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even harassing telephone calls demanding payments.
Between 21 and 40 days after the petition is filed, the Chapter 7 trustee will hold a meeting of creditors (often referred to as the 341 meeting). Although it is rare for any creditors to actually attend, the trustee puts the debtor under oath and both the trustee (and creditors present) have an opportunity to ask questions. The debtor MUST attend the meeting and answer all questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions.
Between 21 and 40 days after the petition is filed, the Chapter 7 trustee will hold a meeting of creditors (often referred to as the 341 meeting). Although it is rare for any creditors to actually attend, the trustee puts the debtor under oath and both the trustee (and creditors present) have an opportunity to ask questions. The debtor MUST attend the meeting and answer all questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions.
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"It is imperative for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests." |
