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What to Expect: The Chapter 7 Bankruptcy Process (Part 2)

By Columbia – Lexington Bankruptcy Attorney Lex Rogerson

To finish a chapter 7 bankruptcy case, the debtor must attend the creditor meeting and complete the financial management course.

In our last post, we discussed the beginning of a chapter 7 case, including the preparation of schedules and statements and the importance of filing day.  Here we take you through the conclusion of that process.

Step 3 — the meeting of creditors

A few days after we file your case, you will receive a notice by mail that schedules some steps in your case.  The first is a meeting of creditors, which is held about a month after the filing.

Questioning - optimizedThe purpose of the meeting is to allow your trustee (and any creditors who wish to attend, though they rarely do) to ask you questions about your financial matters. In central South Carolina, the meetings are held on the fifth floor of the Strom Thurmond Federal Building, the main federal office building in Columbia, and are usually on Friday mornings.

Creditor meetings are generally scheduled at the rate of eight cases each half hour, so each meeting is quite brief. When your case is reached, your trustee will swear you in and ask you a set of questions.  Most questions will be fairly standard — for example:

  • Did you review the schedules and statements that your lawyer filed for you?
  • Is the information true and correct?
  • Have you listed all your debts and all your assets?
  • Have you transferred any property to a family member in the last six years?
  • Did you read over the information sheet provided by the Office of the U.S. Trustee?
  • Have you filed bankruptcy before?

The trustee will also ask a few additional questions. Some are questions that particular trustee always asks, while others will be tailored to your specific situation. Because the subject is your financial matters, however, you will almost always know the answers very readily.

At the end of the meeting, the trustee will announce his decision on your assets. In the great majority of cases, the trustee abandons all the scheduled assets and declares a no-asset case, meaning the trustee does not intend to seize or liquidate anything you own. In my practice, I always meet with the client immediately after the creditor meeting to explain what has occurred and discuss what more needs to be done to complete the case.

Some of my clients are very intimidated by the prospect of appearing at their creditor meetings. Their concerns are understandable but rarely justified. As long as the client has been thoroughly honest and the lawyer has considered all the issues ahead of time, the meeting should go smoothly and without any drama. My clients usually walk out agreeing the experience was not so bad after all.

Step 4 — the chapter 7 discharge

60 days after the meeting of creditors — or about three months after the case is filed — comes a deadline for anyone to challenge the debtor’s discharge. Two separate kinds of challenge are possible.

First, if the debtor has filed a prior bankruptcy within a certain period of time, or has committed certain misconduct before or during the case, the court can prevent a debtor from receiving any discharge at all.  This can happen to a debtor who

  • lies on the schedules or to the court,
  • has transferred or hidden property to keep it from creditors,
  • cannot explain what happened to property that mysteriously comes up missing,
  • refuses to cooperate with the trustee’s inquiries, or
  • does not have the information necessary to give a fair picture of his finances.

This occurs very rarely, so long as the debtor is honest and conscientious.  In fact, I have never had a client denied a chapter 7 discharge.

Somewhat more common are challenges to the dischargeability of a particular debt. Nineteen kinds of special debt cannot be discharged, including student loans, domestic obligations, and most kinds of taxes. For more on this subject, click here.  But dischargeability litigation occurs in only about one case in a hundred.  In most cases, the significance of this deadline is only that the case remains open through that point.

Before the court will issue a discharge, the debtor must complete a two-hour course on personal financial management and file a certificate showing the completion of this debtor education.  Most of our clients take this course online through a provider we recommend.

If all the business of your bankruptcy case has been completed, including the debtor education requirement, the court will issue discharge shortly after the three-month deadline — often as soon as the following day.

Can the case last longer?

Yes, certain things can make a chapter 7 case extend beyond three months.

If there are unresolved matters relating to secured claims, such as a pending reaffirmation agreement or motion to avoid a lien, the case will remain open until that business is finished.

If the debtor has non-exempt assets the trustee decides to liquidate, the process of doing that, filing and reviewing claims, paying claims, and accounting for the funds can drag on a year or more.  However, the debtor usually gets a discharge around the 3-month mark, ending his or her active involvement in the case.

If a creditor challenges the dischargeability of its claim, or if anyone challenges the debtor’s right to a chapter 7 discharge, the case will remain open until that adversary proceeding is concluded.

In most cases, none of these circumstances are present. A large majority of chapter 7 cases close completely at or near the 3-month mark.

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