What Happens When a Person Files for Chapter 7 Bankruptcy?

Eligibility for Filing

• Individual debtors (as opposed to business entities) must meet certain eligibility requirements before filing for bankruptcy under Chapter 7, Title 11 of the United States Code. To be eligible, an individual debtor must undergo credit counseling from an approved credit counseling agency within 180 days prior to filing. Individual debtors may not file for bankruptcy if they, within the past 180 days, have had a previous bankruptcy petition dismissed for certain specified reasons. Debtors whose monthly income exceeds certain minimums are presumptively ineligible for filing under Chapter 7.
  
  

Filing

• Personal bankruptcy under Chapter 7, Title 11 of the United States Code begins with a petition filed in United States Bankruptcy Court in the debtor's resident jurisdiction. The petition must be accompanied by detailed information about the debtor's assets, property, liabilities, current income and expenditures. Once filed, a bankruptcy petition acts as an automatic stay on existing or potential debt collection actions or other collection activities.
  
  

Assignment of Trustee

• A United States bankruptcy trustee is assigned shortly after the filing of the bankruptcy petition. The debtor must provide the trustee with copies of recent tax returns, as well as information about consumer debt, existing repayment plans, and current and future income. The debtor also provides the trustee with a list of exempt property---property that, by law, is not subject to liquidation or seizure by creditors. The scope of allowable exemptions varies from state to state.
  
  

Meeting With Creditors

• Typically, the bankruptcy trustee convenes a meeting of creditors within 20 to 40 days after the petition is filed. The debtor must attend this meeting and respond, under oath, to questions posed by the trustee and creditors concerning the debtor's assets, liabilities and income.
  
  

Proofs of Claim

• Unsecured creditors generally must file proof that the debtor owes them money within 90 days (180 days for governmental units) of the creditor's meeting. These debts are paid off, to the extent possible, through the trustee's liquidation of the debtor's nonexempt assets.
  
  

Discharge of Consumer Debt

• A successful bankruptcy petition and liquidation of nonexempt assets will, in nearly every case, result in a discharge of a debtor's consumer debt. Note that a discharge of debt does nothing to eliminate liens or mortgages on exempt property. These types of property remain subject to seizure through foreclosure proceedings. Nor does a discharge apply to legal obligations such as child support, alimony, and certain taxes and court judgments. Most consumer debts, however, are eliminated by a discharge and are no longer subject to collection actions.