Before getting into something, you should know how to get out. Like what it takes to successfully finish a Chapter 7 bankruptcy case.
After filing a Chapter 7 “straight bankruptcy case” and going through the “meeting of creditors” about a month later, in many cases at that point just about all of the work is done. It’s just a matter of waiting another two months or so after that “meeting” for your debts to be formally “discharged” (written off) and the case to be closed. But even in simple cases there is a fair amount going on behind the scenes. You don’t have to worry about most of the following steps if your case has been prepared well and executed well up through the “meeting.” But it’s good to know about these steps so you know what it really takes to end your case successfully.
In addition to completing a “credit counseling” class (usually online) before filing bankruptcy, after filing you must also complete “an instructional course concerning personal financial management.” This is usually a one-session-with-the-computer class (or if you prefer, by phone or in person) similar to the earlier “credit counseling” one. The later one is probably more informative, according to some of our clients.
Most importantly, the law is very clear that if you file a Chapter 7 case and don’t complete this requirement you don’t get a discharge (legal write-off) of your debts. It’s a simple step but obviously not one to forget about.
Deal with Collateral
If you have any secured creditors, at the beginning of your Chapter 7 you signed a document called a Statement of Intent showing what you wanted to do with each secured creditor’s collateral. That document shows whether you wanted to surrender the collateral, keep it and maintain the payments by “reaffirming” the debt, or keep it by paying off the value of the collateral in a lump sum by “redeeming” it. You need to follow up and fulfill these intentions.
Avoid “Dischargeability” Complaint
Each creditor has until 60 days after the “meeting of creditors” to file a formal complaint objecting to the “dischargeability” of its debt, or else lose their right to ever do so. Complaints can only be raised on very narrow grounds, generally related to your alleged fraud or misrepresentation in incurring the debt, or related to your “willful and malicious injury” to someone or his property. If the creditor does not raise such grounds within the stated 60-day period, then your debts will be usually be discharged immediately after that.
These “nondischargeability” complaints are filed in relatively few Chapter 7 cases. (Note that this is separate from those special debts which are not discharged without a creditor’s objection, such as child and spousal support, “property settlement” debts related to your divorce, those related to any criminal proceedings like restitution, most student loans, and recent income taxes.)
Avoid “Discharge” Challenge
The bankruptcy judge will enter a discharge order, again usually shortly after the above 60-day period ends, ordering that all your dischargeable debts are in fact discharged. However, before that, in rare cases the U.S. Trustee may challenge your right to a discharge. Note this is not about whether you can discharge any particular debt, as was discussed immediately above. Rather it’s about whether you can get a discharge of ANY of your debts.
For this kind of challenge to be raised you would have to be accused essentially of lying to the bankruptcy system—of transferring, destroying, or concealing assets before or during the bankruptcy case; or of providing false information under penalty of perjury on your bankruptcy documents or during the “meeting of creditors.” We’re not talking here about an unintentional oversight, but rather intentional attempts at cheating the system. If you are trying to be honest, and are reasonably diligent in cooperating with your attorney in the preparation of your bankruptcy papers, and during the rest of the bankruptcy process, this will not be a problem for you.
Avoid “Dismissal” or “Conversion”
If you don’t pass the “means test,” your Chapter 7 case could be changed, or “converted,” into a Chapter 13 “adjustment of debts” case, or else thrown out, “dismissed.” Most people easily pass the “means test” simply by having income less than the published “median” family income amounts for your state and family size. Some people have more than “median” income but then still pass the “means test” by having sufficient allowed expenses. So for most, the “means test” is not a problem.
However, even if you pass the “means test” you could be challenged if your actual income is more than your actual expenses, or if you have other circumstances showing that you are “abusing” the process and should be doing a Chapter 13 case instead and paying part of your debts instead of none. Your attorney will inform you if you are at any significant risk of being challenged on any of this.
To emphasize again, in most Chapter 7 cases, other than the mandatory “debtor education” requirement, and doing what you said you would about the collateral, the rest of what we just discussed seldom happens.