What Happens After Filing a Chapter 7 Bankruptcy

What Happens After Filing…

You’ve met with a bankruptcy attorney, reviewed all your assets, and decided that a Chapter 7 Bankruptcy is the right option for you. Now what? What happens after filing a Chapter 7 Bankruptcy? Find out what you need to know, and how your bankruptcy attorney can help.

This blog post will walk you through the steps of what happens after filing a Chapter 7 bankruptcy. It will cover the automatic stay on collections efforts and the trustee’s job in distributing your assets. It will also explain how having an experienced bankruptcy attorney can help you protect more of your property through careful use of exemptions.

Filing a Chapter 7 Bankruptcy Triggers Creditor Notices

When your bankruptcy attorney heads to the courthouse with your petition, it triggers a number of automatic events. After filing a Chapter 7 bankruptcy, the court will assign you a case number and a bankruptcy trustee. The bankruptcy trustee’s job is to review your assets and your claimed exemptions and to manage your bankruptcy estate. At the end of the day, the trustee will be the one making sure creditors get their part of whatever disposable assets you have to satisfy your debts.

After your attorney files a Chapter 7 Bankruptcy, the court clerk sends out notices to each of the creditors you list in your petition. These notices inform the creditor that a bankruptcy has been filed, and its right to be involved in the process. The notice will also set the date for the Creditors Meeting (discussed below), and notify creditors of the automatic stay.

Automatic Stay Goes into Effect

Immediately after filing a Chapter 7 bankruptcy, a taxpayer can expect that an automatic stay on all collections efforts and legal proceedings (including foreclosure) will go into effect. This is a legal red light for creditors, collections companies, repossession companies, and other courts. It puts a pause on any efforts to collect on unpaid debts or overdue balances. While the bankruptcy automatic stay is in effect, creditors may not:

  • Call, text, or send letters trying to collect a debt
  • File collections lawsuits in state court
  • Attempt to evict you
  • Continue foreclosure proceedings
  • Garnish your wages or bank accounts
  • Repossess your property

Instead, creditors can only collect through the sale and distribution of assets by the Trustee, as part of the Chapter 7 Bankruptcy process.

Attend the Creditor Meeting

If you have worked with your attorney to file a Chapter 7 Bankruptcy, you will most likely only have to go to court once. That one time is the Creditor Meeting, also called a Section 341 Meeting. This is a hearing held by the bankruptcy trustee, and is more-or-less an interview with you under oath about your assets, debts, and financial circumstances. You will receive a notice that describes when and where you should attend the hearing. Your bankruptcy attorney or a representative from his firm will be with you the whole time.

Officially, creditors are also allowed to attend the Creditor Meeting and ask you questions about your debt. However, most of the time, they don’t do so. Instead, your Creditor Meeting will most likely be just you, your attorney, and the trustee. The trustee will swear you in, and ask you questions about your property and the bankruptcy petition you filed with the court.

Trustee Sells Non-Exempt Assets to Satisfy Debts

After the Creditors Meeting is over, the Trustee will review all the assets in your case. You and your bankruptcy attorney will have already set aside specific property that is legally exempt from sale. This may include your home (up to a certain amount of equity), your vehicle, and your personal items. Once the trustee sets aside those items, he or she will determine if yours is an “asset case” or a “no asset case”.

No-Asset Cases are Finalized

Most Chapter 7 Bankruptcies are “no asset” cases -- meaning everything you own falls into an exemption and is protected. Once the trustee confirms you have no assets, the trustee will report that to the court so your bankruptcy can be finalized through discharge (discussed below).

Asset Cases’ Property is Sold

If you do have non-exempt assets, these will be sold to satisfy part of your debt to your creditors. This property may be sold at auction to a third party. In some cases, you can also use your exempt finances to pay the cash value of important property, keeping it in the family after the bankruptcy is final. Then, whatever money is collected is divided among your creditors.

Sometimes, the trustee will have questions about your exemptions that require investigation or additional documentation. For example, the trustee may need to determine the current market value of your primary home to see if it falls within the exemption limits. In these cases, the trustee will report that information to the court and keep your case open until those questions are resolved.

Reaffirm Mortgages and Secured Debts

After the Chapter 7 Bankruptcy is filed and discharged, you may still have a mortgage, home equity loan, vehicle loan, or other secured debt that you want to continue after the bankruptcy so that you can keep the home or vehicle they are attached to. As part of the bankruptcy process, you will need to commit to continuing to pay those debts through a Reaffirmation Agreement. In most cases, you and your bankruptcy attorney will receive these agreements from the bank or creditor directly. You should review them carefully before signing them and sending them to the bankruptcy trustee.

Take a Personal Finance Management Course

The Bankruptcy Code says that before your bankruptcy can be discharged you need to take certain steps personally to make sure it won’t happen again. Anyone who files for bankruptcy is required to complete two programs:

  • Pre-petition credit counseling (completed before filing for bankruptcy)
  • Post-petition financial management course (taken after filing a Chapter 7 bankruptcy)

Your bankruptcy attorney will help you provide documentation to the court that you have completed these courses so your debts can be discharged.

Bankruptcy Court Discharges Debt

The whole Chapter 7 Bankruptcy process can take approximately 3 months from beginning to end (longer if you take steps to minimize your debt before you file). At the end of that period, the court will receive a report from the bankruptcy trustee that all your non-exempt assets (if any) have been sold and the proceeds distributed to your creditors. At that point, the bankruptcy court will enter your order of discharge, canceling all but a few of your debts. (Non-dischargeable debts like student loans, taxes, and child support arrears will continue.)

Once that happens, your Chapter 7 Bankruptcy will be over and you will be able to move forward without the burden of late payments and debt collectors. You can start to rebuild your credit and work back up to a financially stable situation.

Get Help That Stays With Your After Filing a Chapter 7 Bankruptcy

If you are considering filing for bankruptcy, you need an attorney you know will be there from beginning to end. At John A. Steinberger & Associates, P.C., we know how the process works. We will stick with you to protect your interests and your assets as much as the Bankruptcy Code allows. We are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.