A chapter 7 bankruptcy is more commonly referred to as a “liquidation” or “straight” bankruptcy, meaning that an individual debtor’s assets will be liquidated by a court appointed trustee, and the proceeds, if any, will be used to pay off – pro rata – the debts owed to creditors. The debtor will then be declared debt-free, and will be able to wipe the financial slate clean. With that being said, let’s explore some questions you may have in deciding whether you should file a chapter 7 bankruptcy petition.
What is bankruptcy?
Bankruptcy is a legal proceeding that allows an individual to be free from debt and to have a fresh start. In other words, if the court grants you a discharge in bankruptcy, you will no longer be obligated to pay your debts. The right to file bankruptcy is enacted under the federal law (not state law) and the cases are handled in the U.S. Federal Bankruptcy Court.
Do I have to do anything once I decide to file a bankruptcy petition?
Within 180 days before you file a bankruptcy petition, you must attend a budget and credit counseling session by an approved credit counseling agency, which can be done in-person, over the telephone or the internet. The agency will issue a certification of completion which you will need in order to file your bankruptcy petition. A list of approved credit counseling agencies can be found on the U.S. Federal Bankruptcy Court’s website (www.cacb.uscourts.gov).
How do I file a chapter 7 bankruptcy petition? Where do I file?
In order to file a chapter 7 bankruptcy petition, you must submit to the U.S. Federal Bankruptcy Court Clerk’s Office the following:
- Credit Counseling Certificate of Completion
- Filing Fee of $335
- Bankruptcy Petition Documents (which is provided on the court website) (at the very minimum, you need to file the Statement of Social Security Number); Voluntary Bankruptcy Petition; Electronic Filing Declaration (if you file online); and Master Mailing List of Creditors (a list of all your creditors’ names and addresses)
The U.S. Federal Bankruptcy Court has courts throughout the nation. If you are a resident of Los Angeles or Orange County, the proper court will be the Central District of California – which has five divisional offices located in Santa Barbara, San Fernando Valley, Los Angeles, Santa Ana, and Riverside.
Are there any fees to file a bankruptcy petition?
The fee to file a chapter 7 petition is $335 for one person or a married couple. In certain situations of hardship, the court will allow the filing fee to either be paid installments or possibly waived; however, you must make such request with the court. The court accepts cash, money orders, or cashier’s checks but not credit cards.
Can I repay my friends and family once I determine I am going to file a bankruptcy?
There is a presumption that 90 days prior to your bankruptcy petition you are insolvent. Hence, any acts you perform to sell, transfer, repay or give away your assets will result either in the trustee unwinding the transaction and returning the assets to the estate and/or you will be liable for such “preferential” transfers. Therefore, it is strongly advised that you talk to an attorney prior to any such bankruptcy filing.
What are my obligations after the petition is filed? And, how long does it take to get my fresh start (get a discharge)?
After you file a chapter 7 bankruptcy petition, you will need to attend what is called a 341(a) Creditors’ Meeting. This is where the appointed trustee and creditors will have an opportunity to interview you regarding your assets and liabilities. Thereafter, if there are no objections from the trustee and/or creditors, the court will grant you a discharge approximately 80 – 100 days after your petition date.
Do I need to hire an attorney?
It is not necessary to hire an attorney to file a bankruptcy petition BUT it is very advisable to do so to protect your rights and interests afforded to you under the law. For example, you will not be allowed to discharge certain debts, e.g., student loans, child support payments, alimony, taxes, etc., and so bankruptcy might not be advantageous to you. Also, certain personal property may be exempted, e.g., jewelry, professional equipment, clothing, equity in your home, etc., meaning that you will be able to keep it even after you file bankruptcy.
I see lots of ads in the newspaper and internet regarding agencies that provide assistance to prepare the bankruptcy petition for a very low cost – what is this?
There are many non-attorney bankruptcy petition preparers out in the market that help you file the documents; however, they are limited to strictly that – preparing the document. The law prohibits them from providing legal advice, and you should not accept such advice. Filing a bankruptcy incorrectly can cause more harm than good.
If you are considering filing a chapter 7 bankruptcy petition in California, or have bankruptcy related questions, please contact Andrew Yun. In addition to preparing the requisite forms, he can advise you on the best financial strategy for your situation.
Andrew Yun is a former Law Clerk to the Hon. Erithe A. Smith, U.S. Federal Bankruptcy Court Judge, and is currently Of Counsel with Kring & Chung, LLP‘s Irvine, CA office. He can be contacted at (949) 261-7700 or [email protected].