The chapter 7 bankruptcy process is simpler than other types of bankruptcy and usually can be completed much faster.
The word “simpler” is relative, as bankruptcy is a nuanced legal mechanism enacted to help debtors deal with unmanageable debt and achieve a fresh start. By comparison, the chapter 7 bankruptcy process is quicker and less complicated than the other bankruptcy chapters.
Unlike other types of bankruptcy, chapter 7 does not involve a repayment plan or debt reorganization. Instead, a trustee is appointed to sell the debtor’s non-exempt property and distribute the proceeds to creditors. Right now, you may be panicking about losing property but many (or even most) debtors who file chapter 7 bankruptcy retain all of their personal property. These bankruptcies are called “no asset” cases and are made possible in part by the comparatively generous bankruptcy exemptions in Arizona. Creditors with unsecured claims receive distributions only when there is non-exempt property to liquidate. If all of the debtor’s property is protected by applicable exemptions, the case proceeds without any type of repayment and the debtor’s liability for most types of debt is discharged.
All voluntary bankruptcies begin with a petition. This is the legal document filed with the bankruptcy court to request the applicable relief. It includes a list of assets and debts, information about the debtor’s income and expenses, a certificate of credit counseling, and other personal information. Chapter 7 can be filed by eligible individuals or businesses. Eligibility is determined based on the debtor’s income per household size and requires the debtor to pass the “means test” if the debtor’s income exceeds the state median.
Once the petition is filed, it creates an “automatic stay” that suspends collection activity against the debtor and the debtor’s property, including collection calls, wage garnishments, lawsuits, and even foreclosure.
Most debtors who file chapter 7 never go to court or interact with a bankruptcy judge. We say “most” because it is possible for creditors to object and/or file lawsuits within the bankruptcy proceeding, called adversary actions. However, these situations are uncommon during bankruptcies filed under chapter 7. Local statistics indicate that 99% of chapter 7 cases proceed to discharge. Usually chapter 7 debtors never see the inside of the court room and must appear only at one formal proceeding, called a 341 meeting of creditors, where the trustee (and sometimes creditors) ask the debtor questions under oath to ensure that the bankruptcy petition is not abusive or fraudulent. The 341 meeting is usually scheduled about one month after the petition is filed.
Assuming all goes well at the 341 meeting, the next step is discharge. Discharge releases the debtor from liability for most types of debt and prevents those creditors from ever taking collection action against the debtor. In most cases, the discharge order is entered about 60 days after the 341 meeting. So debtors who file chapter 7 bankruptcy usually receive discharge about 90 days after filing the petition.
Debts for spousal maintenance and child support, certain taxes, student loans, intentional torts, and restitution typically survive bankruptcy. If debtors wish to retain property serving as collateral for secured debts, such as an automobile subject to a loan, the loan may need to be reaffirmed. Reaffirmation is an agreement between a debtor and a creditor where the debtor will remain liable for a debt that otherwise would be discharged by bankruptcy and the creditor agrees not to repossess the property. Reaffirmation agreements can be fairly complex and must be approved by the judge unless the debtor is represented by a bankruptcy attorney.
We strongly encourage anyone considering bankruptcy to take advantage of a free consultation with an experienced bankruptcy attorney. Bankruptcy is a big decision and even though the process for filing chapter 7 is simpler than other chapters, there are serious consequences for mistake. Your petition could be dismissed or converted to chapter 13. We provide completely free same day consultations by telephone so that you can conveniently and discreetly get answers to all of your questions without the high pressure sales tactics used by other bankruptcy law firms.