How a Chapter 7 Bankruptcy Court Works
The court process for Chapter 7 bankruptcy protection formally begins with the debtor filing a petition for the bankruptcy court for the debtor's district. The debtor will have to provide the court with several documents, including:
- Lists of documented assets and liabilities
- A document detailing the debtor's current income and expenditures
- A statement of financial affairs, which includes all miscellaneous income and expenditures
- A document describing unexpired contracts involving the debtor as well as any unexpired leases.
When filing the petition, the debtor must also submit copies of their tax returns for the previous year as well as tax returns filed during the case. This includes unfiled returns for previous tax years.
If the majority of the debt consists of consumer debt such as credit card debt, the debtor must also file documentation certifying that they have attended credit counseling; stating any interests the debtor has in qualifying state or federal student loan or tuition accounts; showing evidence that the debtor has received payment from employers within the last sixty days; and showing monthly net income and expected monthly net income after filing. This is due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which was designed to make it harder to file for Chapter 7 bankruptcy protection so that lenders could recoup more of their losses.
The court may charge fees extending up to the amount of $300, which the debtor must pay upon filing the petition. If the debtor can show that they are not capable of paying the fees up front, the court will allow them to pay the fees in installments, the number of which cannot exceed four. The final installment must be paid no later than one hundred and twenty days after the petition was filed. Failure of the debtor to pay these fees will probably result in the dismissal of the case.
If the debtor is married, they must collect the financial information of their spouse, as well. Debtors must not that this applies even if only one spouse is filing for bankruptcy protection. This is so the bankruptcy trustee, who is the official that oversees the actual bankruptcy proceedings, can properly evaluate the household's financial position.
The actual hearing itself usually takes no longer than a few minutes. The trustee will verify the debtor's status and confirm that all the relevant information has been presented to the court. After the hearing proper has been concluded, the debtor will be notified by the court whether the petition has been approved or rejected. The debtor will also be sent an official notice of discharge, informing the debtor that they are freed of all obligations to pay their debts. The debtor is now free to resume their financial life and rebuild essential components such as their credit score.
Debtors filing for Chapter 7 bankruptcy protection have the ability to wipe out significant amounts of debt, which is a great boon for debtors facing extreme financial circumstances such as personal catastrophes.
