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Commonly Asked Questions about Chapter 7 Bankruptcy
Christopher Tompkins Attorney At Law 225 Broadway, Suite 2020 New York, NY 10007 212 962-5363 Email: [email protected] What is Chapter 7 Bankruptcy? Chapter Seven or liquidation bankruptcy is the most common form of bankruptcy. The filing of a chapter seven bankruptcy petition and schedules creates a bankruptcy estate which is comprised of non-exempt assets ( or assets a bankruptcy debtor can not keep). Non-exempt assets are sold and the proceeds are distributed to creditors. The debtor then receives a discharge. What is a Chapter Seven Trustee? A Chapter 7 trustee is appointed by the Bankruptcy Court to manage non-exempt assets in the bankruptcy estate. The Chapter 7 trustee’s duties are to collect the assets of the non-exempt property, sell the property, and distribute the asset proceeds to the bankruptcy debtor’s creditors. At the 341 Meeting of Creditors, the Chapter 7 trustee questions the debtor under oath about income, assets, debt and truthfulness about statements in the Chapter Seven bankruptcy petition and schedules that were filed in the bankruptcy. How do I prepare for Bankruptcy? Before filing for Chapter 7 bankruptcy, you must check with an attorney to see if you qualify to file Chapter Seven bankruptcy. Generally, you must live in the jurisdiction where your Chapter Seven bankruptcy lawyer will file the petition and schedules for a period of at least 6 months prior to filing bankruptcy. You must also qualify under the Chapter 7 Means Test which is described more fully on this page. You must provide your Chapter Seven bankruptcy attorney with copies of tax returns ( if married, from you and your spouse) and pay stubs or other proof of income such as unemployment insurance records, social security statements or an affidavit explaining irregular self- employment income. These documents are turned over to the Chapter 7 bankruptcy trustee and are usually filed electronically with the United States Bankruptcy Court. You must also provide your Chapter Seven bankruptcy lawyer with copies of your credit report, bills, collection letters so that he can properly list your creditors on the Chapter Seven bankruptcy schedules. Lastly, you must take a U.S. Trustee Office approved credit counseling course. More on that below. Credit Counseling Requirement Before filing for Bankruptcy in the United States, you must take a credit counseling course from a provider approved by the Office of the United States Trustee. Providers are listed on the website of the Office of the United States Trustee. Once the course is completed, the provider will either email, fax, or mail you a copy of certification of completion of the course which must be filed with Bankruptcy Petition and Schedules in the Bankruptcy Courts in New York City which are located in Brooklyn ( Eastern District of New York) and Manhattan ( Southern District of New York). What is the Chapter 7 Means Test? In simple terms, the Chapter Seven Means Test is a mechanism ( or formula) built into the Bankruptcy Code that separates those debtors that have the means to pay creditors a portion of their debts over time from those debtors who do not. The test separates those who have a defined amount of monthly disposable income after expenses from those that do not. Those who have the defined disposable income may not file Chapter 7 bankruptcy and must then resort to Chapter 13 bankruptcy which requires some payment of debts extended over a period of 3 to 5 years. Those who do not have defined monthly disposable income may file Chapter 7 bankruptcy. If you wish to file bankruptcy, you submit to the Chapter 7 Means Test only if your income ( combined income if married and live with spouse) exceeds the median income of New York State for a particular family size ( with larger households the state median income amount is higher making it easier to qualify) If you live another state, that state’s median income applies. If your income is below the state medium income for a particular family size, you may qualify for Chapter Seven bankruptcy provided you satisfy other criteria. See above. What Assets are Exempt Assets? Generally, exempt assets are those assets that you can keep. They are those assets that do not become part of the bankruptcy estate once a bankruptcy petition is filed. In New York, a bankruptcy debtor may use either Federal or New York State exemptions but not both. Most Chapter Seven bankruptcy filings, therefore, are assetless (no asset) cases leaving nothing for the Chapter 7 trustee to distribute to creditors. Because these exempt assets are not part of the bankruptcy estate when you file bankruptcy, you do not forfeit these assets to the Chapter Seven trustee for liquidation ( sale ) and distribution ( usually of cash proceeds) to pay creditors listed on your bankruptcy schedules. Exempt assets are exempt for public policy reasons. They are usually assets that are essential to basic day to day necessities, that are inherently personal, and that are retirement assets. The law on exempt assets is complex. Call for more information about what assets specifically you can keep or contact a Chapter Seven bankruptcy lawyer. 
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How Do I Know if I Have Exempt Assets that I Can Keep?
The assets that you can keep in bankruptcy ( exempt assets) are those assets under either Federal or New York State law that are specifically designated as exempt. You choose either Federal or New York State exemptions but not both. You can check the exempt assets page on this website to get an idea of what you can keep when you file Chapter 7 bankruptcy. Its also important to consult with a bankruptcy attorney to determine what assets you can keep after filing bankruptcy since bankruptcy exemption laws are complex. What are Non-Exempt Assets? Non-exempts assets are generally assets that you can not keep after filing bankruptcy. Generally, these are assets that are not necessary for day to day living and are generally not retirement assets. Examples are most jewelry, money over the exempt amount, stock, bonds, motor vehicles ( except for one vehicle that is valued at the exempt amount) and other securities, non-exempt real estate ( usually land, buildings, and the value of homes that is above the exempt amount, intellectual property ( ie songs, literary works, computer programs, trade marks, and patents) and most claims in lawsuits with exceptions that you should speak with an attorney about. These assets become part the bankruptcy estate and are sold off ( or liquidated) to pay creditors all, or a portion of , debt claims creditors have against you. The Chapter 7 Trustee manages this process and receives a commission for doing so. This gives Chapter 7 trustees incentive to locate non-exempt assets. The law on non-exempt assets is complex. Call for more information about what assets specifically you forfeit in bankruptcy or contact a Chapter Seven bankruptcy lawyer. What Debts are Dischargeable? Provided that you have not filed Chapter 7 bankruptcy within the past 8 years, most debts are dischargeable. Examples of debts that are dischargeable are credit card debts, medical bills, bank loans, and personal loans. Taxes are dischargeable in some cases and not dischargeable in others. Speak to a Chapter 7 Bankruptcy Attorney about discharging tax debts as this is a complex area of the law. Government student loans and student loans guaranteed by the government are dischargeable only in cases where hardship is proven in an adversary proceeding where a hearing (trial) is conducted with evidence to determine hardship. The law concerning dischargeable debts is complex. Call for more information about what debts are dischargeable or speak to a Chapter 7 bankruptcy attorney. What Happens after I File Bankruptcy? After you file your Chapter Seven Bankruptcy Petition and Schedules, a 341 Meeting of Creditors is usually scheduled on a date approximately 30 to 45 days from the date of filing. You must also take a Financial Management Course before the Bankruptcy case is closed preferably before the 341 Meeting. What is the Financial Management Course (Debtor Education Course)? A financial management course (also called debtor education) must be taken by the debtor from a U.S. Trustee Office approved provider after filing for bankruptcy before the case can be closed and the discharge order issued. It is recommended that the course be taken before the 341 Meeting of Creditors so you can advise the Chapter 7 trustee that it is completed. The financial management course can be taken on the phone, in person, or over the internet. Like the credit counseling requirement before filing, a certificate of completion is given to you by the provider when done and then it is filed with the bankruptcy court by your attorney. What is a 341 Meeting of Creditors? The 341 Meeting of Creditors in Chapter 7 Bankruptcy is a mandatory meeting between the bankruptcy filer (debtor), the debtor’s lawyer, the Chapter Seven trustee ( who is a lawyer), creditors and their attorneys, and an attorney from the U.S. trustee’s office. Practically speaking, however, in most individual Chapter Seven cases, only the Chapter 7 trustee, the bankruptcy debtor, and debtor’s attorney are present since in most cases a debtor’s Chapter Seven bankruptcy petition and schedules indicate that there no assets to distribute to creditors. At the meeting, the Chapter 7 trustee questions the debtor under oath about income, assets, debt and truthfulness about statements in the Chapter Seven bankruptcy petition and schedules that were filed in the bankruptcy. The purpose of the 341 meeting is to help creditors and the Chapter Seven trustee determine whether debtors have non-exempt assets to liquidate and distribute to creditors and to determine whether the debts are in fact dischargeable. In most less complex cases, the meeting lasts for about 10 to 15 minutes. With more complicated bankruptcy cases, the 341 bankruptcy meeting can last much longer. Frequently, the waiting time for your case to be called is much longer than the actually 341 meeting itself. How Should I Dress at the 341 Meeting of Creditors? While there is no need to wear professional attire (suits and dress clothes), you should dress neatly with casual attire. It is not advisable to wear shorts, t-shirts, sneakers, or sandals since creditors and attorneys will be evaluating your demeanor and you want to make a good impression. Who is the United States Trustee? The United States Trustee’s office is responsible for overseeing the administration of bankruptcy cases and private trustees. At times, an attorney from the United States Trustee’s office will appear at the 341 Meeting to question the debtor about the truthfulness of the debtor’s bankruptcy filings. When Will I Receive a Discharge? After the 341 Meeting is closed, the Chapter 7 trustee will make a report to the bankruptcy court as to whether there are assets to liquidate and distribute to creditors. If there are no assets to distribute, the Chapter Seven trustee will recommend that the case be closed. Within a few weeks on average, a bankruptcy judge will sign an order discharging debts which are dischargeable. On the average, this takes 2 to 3 months from the time of the closing of the 341 meeting. If there are non-exempt assets to distribute, it takes longer. Creditors have a period of time to file claims against the bankruptcy estate. Allowable claims are then paid by the Chapter 7 trustee. The trustee then makes a report after collecting the assets and distributing the proceeds from liquidation which may take some time. A bankruptcy judge will sign an order discharging debts which are dischargeable after allowed claims have been paid. Christopher Tompkins Attorney At Law 225 Broadway, Suite 700 New York, NY 10007 212 962-5363 Email: [email protected] |
