What Is Chapter 7 Bankruptcy And How Does It Work?

Chapter 7 bankruptcy is also known as “straight bankruptcy”; it’s the classic form of bankruptcy, the way someone would probably envision it. In a chapter 7 bankruptcy all of the person’s debts are discharged up front, as opposed to a chapter 13 in which they would enter into a repayment plan to reorganize their debts. Chapter 7 is a fresh start right from the beginning. All of the debts get discharged, and they move on from there.

Who Should Not File For A Chapter 7 Bankruptcy?

This really depends on what the person’s goals are. The first step is to determine whether or not bankruptcy is right for the person in the first place. Some people would prefer not to enter bankruptcy because of the consequences to their credit report, and some consequences with creditors and other individual situations. If a person just has one of two bills that are causing trouble, then sometimes it is better to try to work those issues out individually, rather than go into a bankruptcy which cuts a wide swath to fix their credit problems. If someone does not necessarily have a huge amount of property, and they just have a couple of small creditors  they are behind on payment to, then it can sometimes be better to negotiate with those creditors directly.

If an individual is a good candidate for bankruptcy, they would have to decide whether they need a chapter 7 or chapter 13 bankruptcy. Chapter 13 bankruptcies are good for people who have some assets that they do not want to lose. Typically this is a house which they want to keep but because they are behind on mortgage payments, they have been threatened with foreclosure; a chapter 13 would allow them to keep the house. For most other people, chapter 7 is almost always the best way to go, because it gives a fresh start almost right away. All debts are discharged and taken care of so there are no additional responsibilities in the future. A person would just get a fresh start and wipe the slate clean right away. For that reason it is also usually a little bit cheaper and less cumbersome than a chapter 13.

Who Is Permitted To File And Maintain A Chapter 7 Case?

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A chapter 7 bankruptcy is pretty wide open as far as requirements. It is open to individuals and businesses, anyone who has any amount of debt because there really aren’t any restrictions to a chapter 7 bankruptcy. It is a right that everybody has to be protected by the bankruptcy code.

Does The Person Have To Appear In Court When Filing For Chapter 7 And What Will Happen During These Hearings?

The debtor never actually ends up in court in 99% of cases. They do however have to appear for something similar to court, called the 341 meeting, which is between the attorney and the trustee. The creditors have the opportunity to appear at that 341 meeting if they choose to; they usually do not but every once in a while there is one there. It can depend on what jurisdiction the person is in. In Utah these meeting are sometimes held in libraries or in an office building depending on where the case is filed. The locations can vary but it is not a court proceeding. The trustee is not the judge, and the debtor will not actually have to go in front of a judge. At the end of the bankruptcy, the judge will sign the order for the discharge of debts automatically, so he does not need to have the person appear or anything like that.

How Long Does An Actual Chapter Seven Case Typically Last?

It typically lasts around four months from the time the person first sees an attorney. It will take at least a couple of weeks to get everything figured out and filed, and once its filed the person will have to wait for the 341 meeting  which is usually about a month later. The statute says that it has to be held sometime between 20 and 40 days after filing the petition, so the timing is pretty defined. Once the 341 meeting is over, the creditors will have three months to object to anything, and after that the person will get their discharge pretty much right away. It takes just over four months usually, and it really can’t take much longer than five months, unless something has to be delayed or continued.

How Long Does It Take Someone To File And What Is The Initial Process?

I have people fill out a worksheet when they come see me, and they have to take credit counseling classes online that are required by law, so that takes a couple of hours. I also need a number of documents like some pay stubs, tax returns and things like that, so if someone was really in a time crunch, it would take at least a day to get all that together and after that the attorney should file the petition. Usually it takes a little longer than that though. The attorneys do not generally have a day out of the blue to spend on that one petition, so it all needs to be planned maybe for a couple weeks to get everything together and then to give it to the attorney and for the attorney to have them sign the file to petition. A person will probably be able to file a petition within a couple of weeks from when they first met with the attorney, and that starts the clock and it stops creditors from contacting the person and all that.

For more information on Chapter 7 Bankruptcy, a free initial consultation is your best next step. Get the information and legal answers you’re seeking by calling (801) 441-2013 today.

By Court Koehler

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