The Typical Chapter 7 Bankruptcy
Chapter 7 Bankruptcy
A lot of people go into a Chapter 7 Bankruptcy not knowing much about how the process works. Today I am going to spend some time outlining what happens in a typical Chapter 7 case from consultaiton to discharge and beyond. This may not be how your case goes, as every case is different, but most Chapter 7 cases follow a very similar pattern through the bankruptcy court.
Step One: Financial Distress
Most people who are looking into filing for bankruptcy are under massive financial stress. Bankruptcy is a good fix for that, but it has its own downsides. It is very rare that people want to file for bankruptcy for nefarious reasons. Most stem from a job loss, medical bills, runaway credit card debt, a failed business, or something similar. Once you start having financial distress, you start looking for help. Eventually you stumble on bankruptcy, and probably a bankruptcy lawyer. You call and schedule a consultation.
Step Two: Initial Consultation
Every bankruptcy lawyer handles consultations differently. Some lawyers have you come in with all of your paperwork, meet with an "intake specialist", and get the information they need. Personally, I send out a packet to my clients to try to complete before the consultation and I'll review that packet when they come in. In most cases, the initial consultation is when the bankruptcy attorney will review your specific debt issues and determine whether you should file for a Chapter 7, Chapter 13, or some other form of relief. The lawyer should go into detail about your finances, your possessions, and what is most important to you. If you retain the lawyer, he will usually charge a flat fee up-front or enter into a payment plan where no actual work will be done until full payment is made. Bankruptcy is unique in that you cannot pay after the work is done as the debt is technically discharged.
Step Three: Document Gathering
The next step involves a lot of paper. In order to put together your petition, your bankruptcy lawyer is going to need a pile of paperwork. They will need paystubs going back a few months, any outstanding bills you have, and documentation of any big assets. They will also need to get copies of each of your credit reports to make sure everything on the credit report is included in the bankruptcy.
Step Four: Preparing the Petition
Preparing the petition is the lawyer's job. You probably won't be involved in drafting the petition beyond signing it once it is completed. The lawyer may ask you some questions, but you will mostly be patiently waiting. After you sign the petition, your lawyer will file it and the case formally begins.
Step Five: The Meeting of Credits (341 Meeting)
The Meeting of Creditors, also called the 341 Meeting, sounds scary. It's really not. You will come in, be put under oath, and then the bankruptcy trustee will ask you a series of questions about your finances and the bankruptcy filing. If it is a typical case, no creditors will actually show up for the meeting and the process will take less than an hour (often less than 20 minutes). If the trustee has everything he needs, he will close the meeting and it will be over. If he needs something else, he may extend the meeting to another date, but this is usually not a problem.
Step Six: Wait
Behind the scenes, your lawyer may be sending documents to the trustee or making motions to the Court to make sure your bankruptcy goes off without a hitch. Your lawyer may reach out to you with questions or may need additional documents for the trustee. For the most part, you're waiting.
Step Seven: Discharge
And that's it. The Bankruptcy Court will issue a discharge and send a copy to you in the mail. Your debt that was included in the bankruptcy is discharged. You have a clean slate and can move on.
Remember, this is how a typical case goes. Your experience may not be the same based on the facts of your case. But for most people, a Chapter 7 bankruptcy seems scarier and more difficult than it actually is.