The MLG Blog

How long does a chapter 7 take

October 14, 2009

How long will my case take from start to finish?

That is a very common question from clients, understandably they want to know when they get their “fresh start.”

While the timeline can vary greatly for different clients, generally if there is no real estate involved, or the client is giving up the home, the following timeline lays out the average experience of chapter 7 clients. All dates are calculated with the day of filing your case as day 1. Please refer to the earlier entry on “common terms used in a bankruptcy” for definitions used in this entry.

Pre-filing: The planning and preparation for filing can take the most time for a chapter 7 client. Delaying or accelerating the filing of your case can change the outcome of a chapter 7 greatly. An analysis of an individual’s situation is required to determine how much pre-bankruptcy planning needs to be done.

Day 1: Filing of your case. Your bankruptcy will be filed with the Bankruptcy Court. The automatic stay takes effect, preventing creditors from contacting you or repossessing property for the time being.

Day 4 or 5: Notice of first meeting of creditors is sent out by the court. This notice states when and where your meeting will take place.

Day 31: The first meeting of creditors takes place. The person(s) filing bankruptcy meet with their attorney and the trustee. The trustee will put the person(s) filing under oath and ask them general questions about their petition.

Day 60 to 90: Discharge order is signed. If the trustee doesn’t raise any issues with your bankruptcy the court will issue a discharge order. This order wipes away dischargeable debt.

Day 120 to 150: Order closing the case is signed.

As you will notice there is only one date in this generic timeline that requires the people filing to meet with the trustee. If everything goes smoothly the people filing bankruptcy will have long periods of time when they do nothing.

It is important to remember that your case could differ from this generic timeline. You should consult with an experienced bankruptcy attorney for an analysis of your individual situation.

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Chapter 13 Payment Plans

October 14, 2009

Chapter 13 Reorganization
Chapter 13 is a reorganization plan for individuals
Similar to a chapter 7, a petition is drafted and filed with court and a payment plan is proposed. A 341 meeting is scheduled as well as a confirmation hearing.
At the confirmation hearing the judge will either approve or deny your plan to repay your debts in a 3 to 5 year period.
Your income, expenses and debts will determine how much you can pay each month and therefore which creditors will get paid
Again like chapter 7 some debts must be repaid in full and this will impact which creditors get paid. Exemptions and exclusions apply in a chapter 13 as well. Assets with loans on them can be kept if the debtor can continue to make payments on those assets.
Chapter 13 has debt limits for individuals
Currently an individual can have no more than about $300,000 in unsecured debts and just over $1,000,000 in secured debts
The cost of Chapter 13’s vary greatly depending upon the debtors financial situation but is will certainly cost more than a chapter 7 and likely will cost less than a chapter 11. The filing fee for a chapter 13 is $274
Chapter 13’s are recommended for individuals who need to file bankruptcy but fail the means test of chapter 7.

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Chapter 7 bankruptcy basics

October 12, 2009

Chapter 7 Liquidation
A chapter 7 case is a liquidation case, your assets and debts will be gathered and listed on your petition and the trustee will be appointed and be charged with paying your creditors with your assets if possible

Chapter 7 places limits upon who can file based on the income of the debtor
If the debts are primarily consumer debt the debtor must pass a “means-test” before they are allowed to file a chapter 7
The test takes in to account monthly income and expenses and number of dependants in the family
If the debtor fails the means test they may be forced in to a chapter 13 bankruptcy
If the debts are primarily business debt the debtor does not have to pass a means test and generally any amount of debt can be discharged in chapter 7

Exemptions are applied to specific assets allowing the debtor to keep some property though the bankruptcy process
Please refer to the exemption list enclosed with this letter for all of the exemptions available to debtors

If an asset falls within one of the exemption categories and the value of that asset is below the exemption amount the debtor keeps the asset
If the value of the asset is above the exemption amount the debtor has 2 options
1) Pay the trustee for the amount over the exemption
2) Surrender the asset. The asset will then be sold and the debtor will get the exemption amount in cash from the sale of the asset.

After the petition is filed a “first meeting of creditors” is scheduled. This is commonly referred to as a 341 meeting because of bankruptcy code section 341 which mandates that this meeting take place.
The meeting is scheduled for a date around 30 days from when the petition was filed
The trustee puts the debtor under oath and asks questions relating to the petition that was filed
Generally these meetings are quick and easy and are over in about 5 minutes

Overall chapter 7 is more attractive to most debtors as they receive a discharge of the debts that are unpayable much quicker than chapter 11 or 13. If a business owner needs to file bankruptcy and does not wish to continue the business it is usually advisable to close the business down and file a chapter 7 for the individual.
Once a chapter 7 discharge has been ordered the debtor may not file another chapter 7 for eight years. However chapter 11 and 13 bankruptcies are usually available for a debtor that has filed a chapter 7 within the previous eight years
The cost of a chapter 7 varies depending upon the debtors situation, but as a very general rule chapter 7 bankruptcies will cost the debtor anywhere from $1500 to $3000 with a $299 filing fee. It is very important to remember that your costs may vary from this range

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Common terms used in Bankruptcy

October 12, 2009

Basic Bankruptcy Definitions

Bankruptcy Estate
When a debtor files bankruptcy all of their assets become a part of the bankruptcy estate
It can be thought of as a pot containing all of your assets
Some assets, such as ERISA retirement plans (IRA’s, 401(k)’s etc.) are not part of the bankruptcy estate, these are called exclusions
Some assets can be taken out of the pot through the exemptions

The trustee is in charge of administering the bankruptcy estate and ensuring that creditors are paid when possible
The trustee is not your advocate or on your side, they are on the creditors side

When the bankruptcy process is over the debtor receives a discharge of their personal obligation on certain debts and they are no longer obligated to pay them
When a loan is made and property is promised as collateral for the loan two obligations are usually created. 1) A personal obligation to repay the loan. It is because of this personal obligation that creditors can sue you to obtain a judgment. This judgment can be used to levy on your bank accounts and wages and you are forced to pay them out of these assets 2) A creditor’s right in the asset is created. It is because of this right that a creditor can take back the asset if you fail to pay the loan
The discharge does not cut off the creditor’s rights that are attached to the asset, it only gets rid of the debtor’s personal obligation to repay the loan
Bankruptcy law allows a debtor to keep assets that have a loan on them (car, house etc…) under certain circumstances through a reaffirmation agreement
Certain debts generally cannot be discharged and you will have to pay them

  • Most taxes
  • Student Loans
  • Child Support, Alimony
  • Court fines and restitution

Reaffirmation of debt
If you can afford to keep assets that have a loan on them you can opt to continue paying the debt and keep the asset
Most commonly this applies to homes and cars
The debtor promises to continue paying the debt
CAUTION: If you reaffirm a debt and cannot or do not continue to stay current on that loan the creditor can obtain a judgment against you and/or repossess the asset. Reaffirmation agreements should only be made when the debtor is certain that they will be able to make all of the payments on the loan*

An asset that is not part of the bankruptcy estate due to law
These assets are disclosed to the bankruptcy court but you do not need to exempt them, and you will generally be able to keep them through the bankruptcy process
Examples include ERISA retirement plans (401k, IRA) as mentioned above

Assets that can be removed from the bankruptcy estate and kept through the bankruptcy process
The dollar limits for exemptions refer to the equity you have in an asset
For example let’s say that the exemption amount on a car is $3000. If you owe $1000 on the car and it is worth $5000 you have $4000 in equity.
Since you have $4000 in equity and the exemption amount is only $3000 you have a few options

  • 1) Pay the trustee the amount over the exemption limit, here that is $1000
  • 2) Since you don’t likely have $1000 you can surrender the car. It will be sold and if it is sold for more than what is owed on it ($1000) you will receive that money from the trustee in cash
  • 3) Reaffirm the debt and keep paying your loan throughout the bankruptcy process
    The most common examples are; Homestead Automobile Household Furnishings Tools used in a trade or business Jewelry Health Aids Veterans Benefits Alimony, child support

Means Test
The means test for chapter 7 purposes is a calculation of your annual income based on the previous 6 months of paychecks received
The means test compares your income to that of a standard income set by the Federal Government

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