Chapter 7 bankruptcy proceedings are termed “straight bankruptcy” or “liquidation” proceedings because the debtor’s assets are liquidated and the proceeds are distributed among the creditors. The two types of Chapter 7 proceedings are for petitioners whose debts are primarily consumer debts and petitioners whose debts are not primarily consumer debts.
The Chapter 7 bankruptcy case begins with the filing of the petition and matrix (a list of creditors’ names and addresses) with the bankruptcy court. After the petition and matrix are filed, the schedules, certificate of pre-petition counseling, and other documents must be filed within 14 days of the entry of the order for relief. The schedules and certificate of pre-petition counseling are usually filed with the petition. However, if the debtor could not obtain a certificate before the petition is filed, it may be filed with the schedules within 14 days.
Order for relief
An order for relief is prepared by the clerk and sent to all creditors listed on the matrix within 21 days of the entry of the order. Notice of the §341(a) meeting of creditors and the last day for filing creditors’ claims is stated in the order for relief. The bankruptcy attorney must file the attorney’s compensation statement within 14 days of the order for relief and within 14 days of any payment or supplemental agreement regarding fees.
Domestic support obligations
If you, the debtor, are an individual with domestic support obligations (primarily child support and alimony and certain other debts arising from divorce), the trustee will give notice to the ex-spouse that he or she has the right to use the services of the state child support enforcement agency to collect support during the case. The trustee must also provide notice to the state child support enforcement agency that a claim was made for domestic support obligations. When the debtor is discharged, the trustee must give notice to the ex-spouse and child support enforcement agency of:
- The discharge.
- Debtor’s last known address.
- Debtor’s employer.
- Name of each creditor that is not discharged or was reaffirmed.
Appointment and role of trustee
At the §341(a) meeting, a trustee will be appointed to take possession of all the debtor’s nonexempt property (the property you may not keep), sell the property, and distribute the proceeds among the creditors. When all nonexempt assets of the bankruptcy estate are exhausted, the trustee will file a final report, an application for fees and expenses, and an application for order of final decree and discharge.
Financial management course
Before you, as the debtor, can obtain a discharge, you must complete a financial management course approved by the U.S. Trustee. When completed, you file a certification of completion of instructional course concerning personal financial management. The form must be filed within 45 days of the first meeting of creditors. After filing, you are ready for a discharge.
Upon completion of the trustee’s duties and filing the final report, the debtor will be discharged from all dischargeable debts. (For a description and list of nondischargeable debts, see Debts not dischargeable in bankruptcy.) A discharge may be obtained after the expiration of time fixed for filing a complaint objecting to discharge, which is 60 days after the meeting of creditors. The clerk will promptly mail a copy of the final order of discharge to all creditors, the trustee and the debtor’s attorney. A discharge voids any judgment and operates as an injunction against the commencement or continuation of any action against the debtor. An Order of Discharge may be registered in the bankruptcy court in any other district. Registering an Order of Discharge has the same effect as an order of the court in the district where registered.
When the court will deny the discharge
In Chapter 7 cases, the court will grant the discharge unless:
- The debtor is not an individual.
- The debtor concealed, destroyed or transferred any property with the intent to defraud creditors.
- The debtor concealed, destroyed or failed to keep books and records concerning his financial condition or business transactions.
- The debtor fraudulently made a false oath, presented or used a false claim, or withheld information, including documents, from the trustee or an officer of the estate.
- The debtor failed to adequately explain any loss of assets or deficiency of assets.
- The debtor refused to obey an order of the court.
- The debtor transferred any assets to a family member within one year of the filing of the petition.
- The debtor was discharged from another bankruptcy within eight years of the filing of the petition.
- The debtor signed a waiver of discharge.
- The debtor has not paid all filing and administration fees.
- There is a motion to dismiss the case or objecting to discharge pending.
- The debtor failed to qualify for a Chapter 7 proceeding based on the means test.
- The debtor failed to complete a financial management course.
- The debtor failed to file any required documentation.
- The debtor failed to perform the intentions as stated in the Statement of Intention (a declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate).