Chapter 7 bankruptcy proceedings, simply put, is where your non-exempt assets, if any, are liquidated in order to distribute the proceeds to your creditors, the people you owe money to. The proceeds are distributed according to a set of priorities established in the Bankruptcy Code.
Not everyone qualifies for eligibility for Chapter 7 filing and it can be quite complicated for someone not fully aware of the Code or of the most recent changes. For this reason, it is best if you obtain the services of a bankruptcy lawyer. Though that terminology gives them somewhat of a less than positive connotation, they are the best people for the job. Just as you would not go to a criminal attorney to file a divorce, bankruptcy attorneys specialize in that type of case law and are able to guide you through those shark infested waters with ease.
You also must pass the ‘means’ test, which was added to the Bankruptcy Code in order to create objective standards in order to determine those “worthy” of relief by Chapter 7 filing. It basically compares the debtor’s average income for the past six months to the median income for the debtor’s state of residence. If your income is less than or equal to the state’s median income, then you are eligible. It may sound simple, but there is much more that goes into it, which is one reason it is best to go to a bankruptcy lawyer.
In order to determine if you should file for Chapter 7, Chapter 11 or Chapter 13 bankruptcy, the bankruptcy lawyer will give you a number of forms to fill out. It is critical that you spend a good amount of time on filling these out. Do not rush and do not knowingly skip over anything or leave anything out. Every single asset and debt must be listed. Your credit file is a matter of public record and even those items not included on your credit report should be listed. You should even list those debts that are considered non-dischargeable, such as student loans and list those debtors for which you plan to reaffirm the debt, such as your automobile or mortgage. Reaffirming the debt simply means that you will go back to those creditors after the bankruptcy is discharged and make new payment arrangements with them in order to keep those items or to repair some of the damage that has been done by the bankruptcy.
The bankruptcy is in motion once your bankruptcy lawyer files the official petition, the necessary schedules and the statement of financial affairs. It’s critical to note that you will sign these under penalty of perjury, so make sure that you are being absolutely truthful. Also reconsider your lawyer options if you are encouraged to do something that you are concerned may land you in hot water. Yes, there are bankruptcy lawyers that sometimes operate outside of the law, though they are usually not in business long. You just don’t want to be the case that loses them their license, as it’s liable to land you in jail.
Once the petition is filed, a trustee is appointed by the court and your creditors are prohibited from collection until such time as the bankruptcy is discharged. Your bankruptcy lawyer will most likely tell you to refer all calls to him or her, though he or she will have also informed all of your creditors, in writing, most often by certified letter, that you are under the protection of the bankruptcy code at this time.
As the debtor filing bankruptcy, you will have to be present at the first meeting of the creditors, which is also called a 341 meeting. The number denotes the section of the code from which the necessity and the rules of this meeting is defined. Your creditors will be invited, though most usually don’t show up, and both the trustee and your creditors can question you, under oath, about liabilities and assets. After that, your responsibilities are minimal, mainly cooperating with the trustee in providing any requested information. Your bankruptcy lawyer will also insure you take a required course of financial education, which has been a part of the Code since October, 2005.
Bankruptcy can hurt your credit, so it is important to understand that this should be a last resort. Also bear in mind that bankruptcy lawyers earn their money with clients like you, so once you are in their office, you will more than likely be encouraged to continue on that course. They can, however, answer questions you might have and many bankruptcy lawyers will do the initial consultation for free, after which a retainer, a down payment, will be required, and then he or she may possibly set you up on a payment plan to pay over the next 60 days. It normally takes 60 days for the bankruptcy to be discharged.
You should be prepared for this reality going in. Just as you expect to be paid for the work you perform for your employer, your bankruptcy lawyer has every right to expect the same.