IS CHAPTER 7 BANKRUPTCY RIGHT FOR ME?
This blog post is about the procedure for filing a Chapter 7 "straight bankruptcy" case. This assumes that you have made or are on the brink of making the following decisions:
- You need some kind of bankruptcy relief.
- Chapter 7 is the right bankruptcy tool for you, instead of Chapter 13 "adjustment of debts," Chapter 11 "reorganization" (almost always for businesses), or Chapter 12 (for farmers and fishermen).
- You are having a bankruptcy lawyer represent you in your Chapter 7 case.
The first two of these are extremely important legal decisions that you should definitely make only through the advice of an experienced bankruptcy lawyer. These decisions affect your life for years to come. The answers to these first two questions may seem obvious. You may be sure you need some serious legal relief, and Chapter 7 may seem like the simplest and cheapest option. And these may both turn out to be true, or they may not. Even if you do in fact need bankruptcy relief, the timing of your filing can be crucial. A Chapter 13 may have huge advantages over Chapter 7 you didn't know about. See this general information on Chapter 7 and
Chapter 13 elsewhere in this website.
Life is complicated, and bankruptcy law is complicated. As are the relevant laws about debt collection, home foreclosure, vehicle repossession, garnishments, divorce, taxes, student loans, business, etc. You can't make an informed and accurate decision about whether you should file bankruptcy,
which Chapter of bankruptcy to file without receiving thorough legal advice.
Please see How to Find an Experienced Bankruptcy Lawyer elsewhere on this website. Also see
Do You Qualify to File Chapter 7 or Chapter 13? and
The Automatic Stay in a Chapter 7 vs. Chapter 13 Bankruptcy.
ONCE YOU DECIDE ON CHAPTER 7, WHAT ARE THE STEPS INVOLVED?
Here are the steps for preparing to file a Chapter 7 case:
1. Gather information and documents.
2. Satisfy "Credit Counseling" requirement.
3. Review, sign, and file the bankruptcy petition and related documents.
1. WHAT INFORMATION AND DOCUMENTS DO I NEED TO PROVIDE?
Most of the information that your bankruptcy lawyer needs—both to give you good advice and to prepare the Chapter 7 documents—comes from you. Your lawyer may be able to dig up certain information for you, and will talk with you specifically about this. But generally you are the source for the financial details of your life.
What are the financial details that you need to provide?
Consumer bankruptcy primarily involves debts and assets, income and expenses—the basic elements of a person's financial life. So that's the core of what you need to provide. You also give some information about certain related aspects of your financial affairs.
Here is a list of the information and documents that you need to bring to your lawyer. This includes items that don't apply to every case, mostly those that are
italicized. So your own list will almost for sure be shorter:
- Income Information
- 6 months of paystubs (employee)
- 6 months of profit/loss statements(independent contractors and self-employed)
- 6 months of unemployment income; pension income; retirement income
- 6 months of other income- Statements or other (e.g., state assistance, contributions to household)
- Account statements for any debts owed and not reported on credit report
- Financial accounts closed in the last year (the date closed, last 4 digits of closed accounts)
- 6 months of banks statements for any bank or credit union accounts
- Last 2 years of filed federal and state income tax returns
- Mortgage statements
- Property insurance statements
- HOA fees statements
- Months of payments remaining on vehicle loans
- Copies of any pending lawsuits (where you are a plaintiff or a defendant)
- IRS or state income tax statement (showing any back-owed taxes)
- Pension/retirement account statements/401K statement (showing accumulated balance)
- Life insurance statement—whole life (showing cash surrender value)
2. HOW DO I SATISFY THE "CREDIT COUNSELING" REQUIREMENT?
First, it's quite easy to satisfy this requirement. Second, I put "credit counseling" in quotes because it really doesn't amount to any real credit counseling. It's mostly just a bureaucratic hoop to jump through.
But doing it right, and at the right time, is still crucial because you can't file a consumer Chapter 7 case without jumping through this hoop.
It's easy because almost always it can be done on the internet, or by phone, and you just about always get the result you need. It takes about an hour and a half, and you do have to pay a modest fee. You simply provide some information—mostly about your debts, income and expenses. Then almost always you're given the conclusion that your expenses are larger than your income. (No surprise there!) When you finish you get an emailed certificate proving that you've gotten the necessary "credit counseling." Your lawyer must submit that certificate along with your other paperwork when filing your Chapter 7 case at the bankruptcy court. (See Section 109(h) of the Bankruptcy Code.)
The timing is very important. You don't want to do it either too early or too late. The certificate you receive is good for exactly 180 days (about 6 months). So don't do the "counseling" until you know you will be filing bankruptcy within that time, and you've talked to your bankruptcy lawyer about the timing. Sometimes there are extremely important, and sometimes surprising, reasons to delay filing that you learn about only after your lawyer thoroughly analyzes your case. However, you also want to get this requirement out of the way so that it doesn't slow down your Chapter 7 filing.
Talk with us find out about the best and least expensive credit counseling agencies to use. There are many of them, with huge differences in quality and convenience.
3. WHAT ARE THE BANKRUTPCY PETITION AND DOCUMENTS THAT I SIGN?
The filing of your petition starts your case. To get bankruptcy relief you simply need to formally ask for that relief.
The other documents that your lawyer files with the petition support your request for relief. They document the debts you owe so that you can write them off or deal with them some other way, and support your right to do so.
IS GETTING RELIEF AS SIMPLE AS ASKING FOR IT?
At the heart of the Chapter 7 bankruptcy petition are the simple words "I request relief."
Bankruptcy law states that a Chapter 7 case "is commenced by the filing with the bankruptcy court of a petition" by a person who "may be a debtor" under Chapter 7. Section 301(a) of the Bankruptcy Code.
That filing of a petition "constitutes an order for relief under such chapter." Section 301(b). That is, the moment your lawyer files your Chapter 7 petition at court you get immediate bankruptcy relief.
So, yes, getting relief is as easy as filing the petition asking for relief.
(Note that the official Chapter 7 petition form is 8 pages long, and so of course there's a bit more to the form.)
WHAT ARE THE OTHER DOCUMENTS THAT GO WITH THE PETITION?
The law says that you must also file "a list of creditors," "a schedule of assets and liabilities," "a schedule of current income and current expenditures," "a statement of the debtor's financial affairs." Section 521(a)(1)(A) and (B). There are a few others but these are the main ones.
These documents are prepared and usually filed with the petition at the very beginning of your case. In rare cases some might be filed at court a little later, or sometimes amended with additional or corrected information.
WHAT'S IMPORTANT ABOUT THE LIST OF CREDITORS?
Start with the general rule that if you don't include one of your debts in your bankruptcy documents that debt might not be written off ("discharged"). So it's important to be thorough. See my earlier blog post, I Forgot to List One of My Creditors In My Bankruptcy Case, for more about this.
The required list of creditors is divided into two schedules. You can see here what information is included in these schedules:
WHAT DO THE REST OF THE DOCUMENTS LOOK LIKE?
The "schedule of assets and liabilities" includes:
The "schedule of current income and current expenditures" includes:
The "statement of the debtor's financial affairs" is a set of 28 questions about your recent past and present finances:
The main other Chapter 7 documents include:
WHAT HAPPENS AFTER I REVIEW AND SIGN THE PETITION AND OTHER DOCUMENTS?
Your lawyer will file the petition and other documents at the local bankruptcy court. This will happen either at or right after your signing meeting, or at an agreed time soon after.
The papers are electronically delivered to the bankruptcy court clerk's office. This is quick and efficient, especially if you need to stop a creditor's action through your bankruptcy filing. Your lawyer doesn't need to race your documents to the bankruptcy court, but instead does so electronically at her office.
The filing of your case starts the 3-4 month Chapter 7 bankruptcy procedure. I'll cover that in an upcoming blog post.