The Cassidy Law Firm Blog

Friday, March 11, 2022

What is the Chapter 7 Bankruptcy Process?

Have you been struggling to keep up with your minimum credit card payments? Have some of your debts been sent to collectors and the phone calls have begun to roll in? If you are finding it difficult to stay financially afloat, then Chapter 7 bankruptcy may be an option to get you a fresh start. There are, however, specific eligibility requirements to be met and hoops to jump through in order to successfully navigate Chapter 7 bankruptcy. Here, we’ll give you a bird’s eye view of the process.

What is the Chapter 7 Bankruptcy Process?

Chapter 7 bankruptcy is considered to be a liquidation bankruptcy as it will involve a trustee taking control over a debtor’s non-exempt assets and liquidating them down to cash. The cash is then distributed to creditors in exchange for a discharge from outstanding debts. Exempt assets are usually considerable in Chapter 7 filings and often not much of a debtor’s estate ends up being sold off to satisfy creditor obligations.

Filing for Chapter 7 bankruptcy has some big benefits. The main one, of course, is that debtors can receive a discharge of qualifying debts within a few months of filing. Another is the fact that filing a Chapter 7 petition will institute an automatic stay of most collection efforts against the debtor. This means that, as soon as and as long as the automatic stay remains in place, many of the continued creditor collection efforts will be stopped. This means that creditors will not be able to initiate a lawsuit against the debtor, demand payment, or initiate or continue wage garnishment of the debtor while the stay is in effect.

In order to be eligible for Chapter 7 bankruptcy, your current monthly income must fall below the state median income. Should your current monthly income meet or exceed the state median income, you will not be able to proceed with a Chapter 7 filing although you may be able to proceed pursuant to a Chapter 13 bankruptcy filing.

Prior to filing for bankruptcy, you will need to get credit counseling. The certificate you earn from completing your credit counseling course will need to be attached to your bankruptcy petition. All required documentation needs to be filed at the appropriate Bankruptcy Court Clerk’s Office along with the requisite filing fee. Documentation to be included with the bankruptcy petition includes:

  • Official Form B1—Voluntary Petition
  • Official Form B21—Statement of Social Security Number
  • Credit Counseling Certificate
  • Exhibit D- Individual Debtor’s Statement of Compliance with Credit Counseling requirement
  • Official Form B22A – Chapter 7 Statement of Current Monthly Income and Means Test Calculation
  • Procedural Form B201 Notice to Individual Consumer Debtor Under Section 342(b) of the Bankruptcy Code

At least one original and one copy of all forms needs to be submitted along with the bankruptcy petition. All lines and blank spaces on the requisite forms needs to be completed. Failure to file all properly completed, required documentation along with the bankruptcy petition will result in a deficiency notice being issued.

After the filing of the bankruptcy petition, the United States Trustee will appoint a bankruptcy trustee. The court will issue a Notice of Chapter 7 Bankruptcy Case, Meeting of Creditors & Deadlines. The trustee is tasked with administering the bankruptcy case. The trustee’s primary role will be to examine your estate’s assets and, in turn, will liquidate non-exempt assets to distribute to creditors.

New Jersey Bankruptcy Attorneys

Cassidy Law Firm can assist you in properly filing and navigating the Chapter 7 bankruptcy process. Contact us today.


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