What Happens in a Chapter 7 Bankruptcy?
At the end of a Chapter 7 bankruptcy, the judge discharges most unsecured debts. But a lot of other things happen in Chapter 7 bankruptcy before that point.
“Discharge” means the judge eliminates the legal obligation to pay a debt. However, the collateral effects of that debt remain. If ABC Company filed a mechanic’s lien before Dave filed bankruptcy, that lien remains, even if the judge discharges the debt.
“Unsecured debts” include medical bills, credit card debt, and other obligations backed by a promise to pay. Some unsecured debts, mostly student loans, back taxes, and FSOs (child support and other family support obligations), are priority unsecured debts which are only dischargeable in some situations.
No matter what happens in a Chapter 7 bankruptcy, a Chicago bankruptcy lawyer works hard to obtain the best possible results in the least amount of time.
Filing the Petition and Schedules
Only a Chicago bankruptcy lawyer should handle this process. Filing a petition and schedules is like filing a corporate tax return without the instructions.
The debtor must file complete and accurate documents. The judge might throw an incomplete or inaccurate filing out of court. The documents must be error-free, but they aren’t set in stone. A Chicago bankruptcy lawyer can amend them later, or even convert the Chapter 7 into another kind of bankruptcy, such as a Chapter 13.
Automatic Stay
The moment the court clerk receives the paperwork, Section 362 of the Bankruptcy Code takes effect. The Automatic Stay halts most creditor adverse actions, such as:
- Repossession,
- Wage garnishment,
- Foreclosure,
- Creditor lawsuits, and
- Eviction.
Although the Automatic Stay technically goes into effect immediately, creditors don’t have to do anything until they receive actual notice of the filing.
Once again, attention to detail is important. For example, if Dave’s lawyer notifies his mortgage company but not the foreclosure auctioneer, the sale could go forward.
Asset Exemptions
Chapter 7 bankruptcy does more than stop adverse creditor actions. It also stops the trustee (person who oversees the bankruptcy) from seizing and liquidating assets. Some asset protections in Illinois include:
- Home equity,
- Motor vehicle,
- Retirement accounts,
- Government benefits, and
- Personal property.
Some exemptions are value-based. For example, joint filers can protect up to $100,000 of home equity. But a 401(k) or other retirement account is 100 percent exempt regardless of the value, at least in most cases.
Trustee Meeting (341 Meeting)
Section 341 of the Bankruptcy Code requires debtors to meet with the trustees that manage their cases. Creditors may attend as well, but in a consumer bankruptcy, creditor attendance is almost unheard of.
Chapter 7 341 meetings are usually perfunctory. After the trustee reviews financial documents, such as tax returns, and verifies the debtor’s identity, usually with a photo ID and Social Security card, a Chicago bankruptcy lawyer asks a few scripted yes/no questions.
If no red flags arise and the debtor has completed a budgeting class and met all other requirements, the judge typically issues a discharge order without requiring a hearing.
Count on a Savvy Cook County Lawyer
No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced debt reduction attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. The sooner you reach out to us, the sooner we start working for you.
