Chapter 7 Bankruptcy FAQs

These are some of the frequently asked questions regarding Chapter 7 Bankruptcy. Just click on the question for the answer. If you cannot find the answer you need below, or have a new question you think might be helpful to others, please contact us for additional help. – Robert C. Russell

What is a Chapter 7 discharge?

Generally, obtaining a “discharge” is the major reason why people file Chapter 7. A “Discharge Order” is an Order of the Bankruptcy Court that, when entered, releases a debtor from the personal obligation to repay the debtor’s discharged debts. The “Discharge Order” also orders creditors to discontinue attempts to collect on a debt that has been discharged.

What do I need to bring to the Chapter 7 341 Meeting?

You need to bring picture ID such as a Driver’s License and proof of your Social Security number such as a Social Security Card, an IRS Form W2 or 1099, or anything else that you did not create that shows your full and accurate SSN. Prior to the 341 Meeting, the trustee should have been provided with a bank statement showing your balance as of the date of filing. Trustee’s may also request additional documents. Normally, all you have to bring is the picture ID and proof of SSN.

How much is the Chapter 7 filing fee?

The filing fee is presently $335.

Who is eligible for a Chapter 7 Discharge?

Generally, everyone experiencing a financial hardship is eligible for Chapter 7 relief unless:(a) you have already filed a Chapter 7 bankruptcy and received a discharge in the last eight years,(b) you have already filed a Chapter 13 bankruptcy and received a discharge in the last six years (unless you paid 70% of your unsecured claims in that case), or(c) you have primarily consumer debt and you make too much money to qualify for Chapter 7 relief and/or an abuse of the bankruptcy system would result if you were released from your debt (i.e., it would not be “fair” for you to be granted a discharge).

When am I protected from my creditors?

Generally, you are protected immediately upon filing. The filing of a Chapter 7 case automatically stays (stops) virtually all collection and other legal proceedings that have been filed against the debtor.A few days after a Chapter 7 case is filed, the Court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If the debtor cannot wait this long, it is permissible for the debtor to notify one or more of the creditors of the filing of the case. Any creditor who intentionally violates this Court order may be liable to the debtor for damages.The most common actions not affected by the filing of a Chapter 7 case are criminal proceedings and actions for the collection of alimony, maintenance or support. Collection actions “stayed” by the filing of bankruptcy are listed in 11 USC § 362.

When are debts discharged?

The basic rule is that all debts are discharged unless they fall into one of the several exceptions found in 11 USC § 523, including, but not limited to:Fraud/theft. Debts resulting from a successful effort to obtain money, property, services, or credit by means of false pretenses, fraud, or a false financial statement (NOTE: Fraud is presumed to exist if you put more than $1,150 on one single card in the 60 days before you file).

– Child support/alimony. Debts for alimony, maintenance, or child support.

-Intentional injury. Debts for intentional or malicious injury to the person or property of another.

-Taxes. Debts for certain taxes such as income and property taxes.

– Fines and penalties. Debts for certain fines or penalties, including traffic tickets, payable to and for the benefit of a governmental unit.

– Student loans. Debts for student loans (unless not discharging the debt would impose an undue hardship on the debtor and the debtor’s dependents).

– Intoxication. Debts arising from a judgment or court decree entered against the debtor for damages resulting from the operation of a motor vehicle while legally intoxicated.

– Credit card/taxes. Credit card balances to the extent that the balance on the card is the result of paying otherwise nondischargeable taxes.

– Certain spousal debts: Debts owed by a debtor to a former spouse that qualify as a “domestic support obligation.” This includes child support, alimony and property settlements, including a debtor’s obligation to pay certain debts for the ex-spouse.

– AFDC. Debts owed to a governmental entity to reimburse AFDC payments made to a dependent.

What assets do I get to keep?

Generally speaking, most people get to keep all of their assets. The reason for this is that the value of most debtor’s assets does not exceed the exemption protection limits. In other words, most debtors do not have “too much stuff.” If you have items that are not exempt, the Chapter 7 Trustee may, generally, takes possession of that item, sell it, and pay administrative costs and money to your unsecured creditors.

Generally, debtors in 95% of cases do not lose a thing. Assets that can be protected under federal bankruptcy law can be found in 11 USC § 522. Assets that can be protected under Washington state law can be found, in part, under RCW 6.15.010.

Can I lose my property?

There are several ways to lose property in a Chapter 7. The first is if that property is not “exempt,” i.e., your value/equity in the property exceeds the amount that you can protect by law from your creditors. The second is if you try to hide it from the Chapter 7 Trustee and he finds out about it. The third is if the asset is collateral for a loan, and the creditor repossesses the property in partial payment for the debt. (Repossession does not normally occur until after the bankruptcy is complete.)

Will I ever be able to buy a house?

Most mortgage lenders tell us that after 2-5 years, bankruptcy doesn’t hurt your chances of buying a home. However, you will have to check with various lenders to find out their specific policies. Different lenders have different rules.

What happens to my credit?

A Chapter 7 bankruptcy is typically noted on your credit report for 10 years. The debts listed in your bankruptcy should be noted on your credit report as “zero balance due” and/or “included in bankruptcy.” However, filing bankruptcy does NOT mean that your credit is “ruined” for 10 years. If you really need to file for bankruptcy protection, it usually means that not filing could lead to lawsuits, judgments,. garnishments and other things that would negatively impact your credit and life for a period far longer than 10 years. For instance, in Washington, judgments are good for ten years and can be renewed under certain circumstances for another ten years.

Who will know that I filed bankruptcy?

Bankruptcy is a matter of public record. However, generally, it is not publicized beyond notice to your creditors and co-debtors. Employers and newspapers are NOT generally notified of the bankruptcy.

Is bankruptcy immoral? Am I just taking the easy way out?

Some people argue that filing bankruptcy is taking the easy way out. I suppose that it could be the “easy way out” if you never tried any other way to pay your debts. However, most people try their best to avoid bankruptcy. Some people even sacrifice their health and relationships in an effort to pay bills that are beyond their ability to pay. Bankruptcy is a gut-wrenching experience that most people try very hard to avoid.

Also, bankruptcy is a legal remedy made available by your United States’ Constitution. It was recognized by our Founding Fathers that there are certain circumstances where a person or family simply needs relief from their debts. And bankruptcy relief is only available to people that actually qualify for assistance.

Is it wrong to file bankruptcy? No, not if you need the help. You should not be forced into virtual life-long slavery to your creditors because you had a medical emergency, loss of employment, or even made bad financial decisions. Bankruptcy is rarely a first choice. But sometimes it is simply the best choice, when all the options are considered.

Will I have to go to court?

A debtor does not generally go to court. However, there is as administrative hearing called a “Meeting of Creditors” or “341 Meeting” that occurs about 20-40 days after the case is filed. At this hearing, the Chapter 7 Trustee places the debtor under oath and asks questions about the debtor’s money, property, and debts. Generally, a debtor’s creditors do not attend this hearing. However, if one does, the Trustee will give the creditor only a few minutes to ask a few quick questions. Most 341 Meetings take only 5-10 minutes.

How long does a Chapter 7 bankruptcy take?

Once the bankruptcy is filed, the entire Chapter 7 process usually takes about three months. During this process, you must attend one “341 Meeting.” The rest of the time (another 60 days), you are usually just waiting for the time to pass until entry of your Discharge Order.

How can I avoid problems in my Chapter 7 bankruptcy?

The following people should expect “problems” in bankruptcy:

(a) Persons who conceal, transfer, or destroy their property with the intent to defraud their creditors or the Trustee in the Chapter 7 case.

(b) Persons who conceal, destroy, or falsify records of their financial condition or business transactions.

(c) Persons who make false statements or claims in their Chapter 7 case, or who withhold recorded information from the Trustee in the case.

(d) Persons who fail to satisfactorily explain any loss or deficiency of their assets.

(e) Persons who refuse to answer questions or obey orders of the Bankruptcy Court, either in their case or in the case of a relative, business associate, or corporation.

(f) Persons who have engaged in pre-filing activity with the intent to defraud creditors.

How will a Chapter 7 bankruptcy affect my credit?

Chapter 7 and Chapter 13 bankruptcies can be listed on a credit report for 10 years from the date of filing.  However, the three primary consumer credit reporting companies will remove a Chapter 13 bankruptcy from your credit report after 7 years.   The law allows them to leave it on the credit report for up to 10 years.  But they chose to remove a Chapter 13 bankruptcy after seven years as an incentive to consumers to file a Chapter 13 (instead Chapter 7) and attempt to repay their creditors as best they can.

A person with financial problems might consider avoiding bankruptcy because of the potential impact on their credit report.  However, sometimes a score/rating will go UP  after a case is filed.  Second, in Washington State a judgment is good for 10 years and can reported for 10 years.  A judgment can also be renewed for another 10 years.   So, a judgment for a bad debt could be listed for up to TWENTY years — and the consumer might still owe the debt!   A judgment unpaid also allows the creditor to garnish wages and bank accounts, and engage in other collection activities.  The point:   Sometimes not filing a bankruptcy can be far worse than filing a bankruptcy, both for your credit report and the impact on a consumer’s daily life.