Chapter 7 bankruptcy is so called because it’s filed under Chapter 7 of the Bankruptcy Code. A Chapter 7 bankruptcy is generally the simplest and quickest form of bankruptcy process available. The whole Chapter 7 bankruptcy process takes about four to six months, and commonly requires only one trip to the courthouse. It’s available to individuals, married couples, corporations and partnerships.
In order to be eligible for Chapter 7 Bankruptcy, an individual has to take the means test where a debtor’s income and expenses are examined to see how they compare to the standard for his/her state. Eligibility also includes mandatory credit counseling and budget analysis.
The bankruptcy process gets rolling by filing an official petition, schedules and statement of financial affairs in the bankruptcy court. Along with it a full list of creditors, their claim types and amounts, the source, amount and frequency of the debtor’s income, list of all property and a detailed list of monthly living expenses should be filed. As soon as the filing is complete, automatic stay comes into effect whereby the creditors are prohibited from continuing with collection activities. The creditors can ask the bankruptcy court to lift the stay.
A trustee is appointed to administer the case. Most of the action in the case takes place in the trustee’s office and not the courtroom. The trustee takes control of the debtor’s property, unless it’s exempt, and starts working through the case.
Twenty to 40 days after filing the petition, the trustee holds a first meeting of creditors, called a 341 meeting. The bankruptcy trustee runs the meeting and, after swearing the debtor in, may ask questions about the bankruptcy and the papers filed. In majority of Chapter 7 bankruptcies, this is the debtor’s only visit to the courthouse.
If after the creditors meeting, the trustee determines that the debtor has some nonexempt property, then it should either be surrendered or equivalent value in cash should be provided to the trustee. However, if the property though not exempt isn’t worth much or would be cumbersome for the trustee to sell, the trustee may abandon the property thereby allowing the debtor to retain it.
Creditors have 60 days after the meeting to convince the bankruptcy court they should be paid and debts shouldn’t be discharged. At the end of the bankruptcy process, all of the debts except debts that automatically survive bankruptcy, such as child support, most tax debts, and student loans, unless the court rules otherwise, and debts that the court has declared non dischargeable because the creditor objected are wiped out .