Chapter 7 Bankruptcy FAQ
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is a legal action filed in Federal Court. In a Chapter 7 Bankruptcy, all creditors are notified that a bankruptcy has been filed, and to immediately stop collecting all debts. All the debtor’s property will be in legal possession of the Bankruptcy Trustee, whose responsibility is to determine whether any of the debtor’s property is available to be sold for the benefit of the creditors. In most cases, after applying all the available exemptions, the trustee will find that no property is able to be sold. When this happens, the Court will discharge the debtor from the obligation to pay most debts, and closes the case. The entire process usually takes between 3 - 4 months. Back to Top
Do I Qualify for Chapter 7 Bankruptcy
The Means Test is a test to determine whether or not you qualify for a Chapter 7 Bankruptcy. If your current monthly income is less than the state median income for a household of your size, then you pass the means test and you qualify for Chapter 7 Bankruptcy. If your income is more than the state median, you must determine whether you have enough income left over (called "disposable income"), after paying your allowed monthly expenses, to pay off at least a portion of your unsecured debts (such as credit card bills). If your disposable income adds up to more than a certain amount, you fail the means test and cannot get a discharge by filing for Chapter 7 bankruptcy.
The Means test takes into account gross income from last 6 months before filing. This can impact whether or not you want to file in any given month. For instance, if you receive annual bonuses, you may not want to file right after receiving a bonus if that will raise your income of the last 6 months over the means test threshold.
In calculating your income over the last 6 months, keep in mind you also have to include sources other than earned income from your work. Some other potential sources of income you will include are alimony/maintenance, business income, unemployment income, pension and retirement income, child support, etc. Social Security and SS Disability income is not included as income in determining eligibility for Chapter 7 Bankruptcy.
Missouri median income changes over time. You can find the current Missouri median income based on household size at the US Trustee’s website here: https://www.justice.gov/ust/means-testing
The Chapter 7 Bankruptcy Process
Means Test
The first step in filing a Chapter 7 Bankruptcy is to determine whether or not you qualify. This is done by a financial and legal analysis. In order to automatically pass the means test, you must have a household income less than or equal to the state median income for a household of your size. If you do not automatically pass the means test because your income is greater than the state median, then you may still qualify for Chapter 7 Bankruptcy if your reasonable monthly expenses are great enough that you do not have enough disposable income left over to pay at least some of your unsecured debts. Your lawyer at Heron Legal Solutions will assist you with this process at no cost to you. Back to Top
Bankruptcy Documentation
Once your lawyer has determined that you qualify for a Chapter 7 Bankruptcy, you will begin gathering documents such as paystubs, divorce decrees, bank account statements, mortgage statements, property leases, credit card statements, invoices, etc. Your attorney will provide you with a list of necessary documents for you to gather and provide. Back to Top
Bankruptcy Worksheet
Once your lawyer has determined that you qualify for a Chapter 7 Bankruptcy, and you have provided the necessary documentation, you will begin to complete the Chapter 7 Bankruptcy Worksheet. The Bankruptcy Worksheet will ask about your Income, Expenses, Assets, Property, Debts, and other financial and personal details. Your Chapter 7 Bankruptcy Attorney will use this information to analyze your case and to begin drafting your Bankruptcy Pleadings. Back to Top
Signing the Pleadings and Schedules
Once your Chapter 7 Bankruptcy Pleadings have been drafted, your attorney will review the Pleadings with you in detail. When you have verified the accuracy of your Chapter 7 Bankruptcy pleadings, you will Sign the documents, and complete payment of attorney fees and court filing costs. Your Chapter 7 Bankruptcy will then be ready for filing. Back to Top
Filing the Case and the Automatic Stay
Once you have signed your pleadings, and the fees and costs have been paid, then your lawyer will file your Chapter 7 Bankruptcy. Upon filing, your creditors will be notified to immediately cease any and all collection efforts. All lawsuits, garnishments, bank levies, foreclosures, phone calls, and letters will stop in their tracks. This mandatory cessation of collection efforts is known as the Automatic Stay. Back to Top
Appointment of the US Trustee
After filing, a US Trustee will be appointed to administer your case. The primary role of the US Trustee in a Chapter 7 Bankruptcy is to examine and ensure that all information you have provided in your pleadings is accurate and complete, and to determine whether or not there will be any assets in your case that may be liquidated for the benefit of any eligible creditors. Back to Top
341 Meeting of Creditors
In order to determine whether or not there will be any assets that may be liquidated for the benefit of any eligible creditors, the US Trustee will schedule a 341 Meeting of Creditors. It is called a “341” meeting after the chapter of the Bankruptcy Code which describes it. The 341 Meeting is usually between you, your attorney, and the US Trustee. Currently, all 341 Meetins are done over the phone. During the meeting, the US Trustee will review your filed Chapter 7 Bankruptcy pleadings and ask questions in order to make sure your pleadings are accurate and complete. Rarely, a creditor may show up and also ask questions. Back to Top
US Trustee Abandons Interest
Once the US Trustee has determined that there are no assets eligible to liquidate for the benefit of your creditors, the Trustee will notify the Court that it is abandoning interest, and your case will be ready for discharge. Back to Top
Discharge of Debt and Closing of the Case
After all creditors have been notified, and you and your attorney have met with the US Trustee, and the Trustee abandons interest, the Court will order your debt to be discharged and will close your case. At this point, your Chapter 7 Bankruptcy will be over, and you will not owe any money to any creditor on any discharged debt. Back to Top
What Happens After My Chapter 7 Bankruptcy?
The Fresh Start
After a Chapter 7 Bankruptcy, most people will be free from all unsecure debt. This includes being free from credit card debts, medical bills, personal loans, judgment debts and payday loans. Also, any court cases/lawsuits will be dismissed. No debt collector or attorney will ever be able to try to collect any debts that are discharged in a Chapter 7 Bankruptcy. Back to Top
Credit Scores
A Chapter 7 Bankruptcy will have a negative impact on your credit report. However, in most cases, credit scores begin to improve soon after a Chapter 7 Bankruptcy case is closed. Many people receive numerous offers for credit cards and other financing opportunities after a Chapter 7 Bankruptcy because at that point, you are often debt free. Once you receive a Fresh Start under a Chapter 7 Bankruptcy, you should be cautious about taking on new debt, and instead focus on paying for most purchases in cash and enjoy being debt free. A Chapter 7 Bankruptcy will remain viewable on your credit report for up to 10 years although it will usually become less impactful over time. Back to Top
Yes, There Is A Bright Future After Bankruptcy
The biggest thing most immediately after a Chapter 7 Bankruptcy is the relief people feel in being free from oppressive debt. In most cases, you will be able to keep all your property in a Chapter 7 Bankruptcy. Your credit scores will take a hit in the short term, but usually improve over time as you rebuild credit history. After a time, most are able to use credit again, to buy houses, cars, and other needs. With a Fresh Start after a Chapter 7 Bankruptcy, you will have the knowledge and experience to use this credit wisely and responsibly. Back to Top