In the majority of cases handled by our firm, the clients lose no existing property. Under Chapter 7, you are entitled to keep (“exempt”) property which is protected under Oklahoma law. A few examples of Oklahoma’s exemptions are: (1) unlimited equity in Oklahoma homestead as long as the lot is 1 acre or less inside city limits (160 acres or less if outside city limits); (2) $7,500.00 in equity in 1 automobile; (3) household goods and furnishings; (4) qualified retirement accounts; and (5) $4000.00 in clothing. Examples of non-exempt property are mineral interests, stamp or card collections, bank or stock accounts that are not qualified retirement plans. Our Oklahoma City bankruptcy lawyers will work with you to determine what property you have and you will know before you file if any of your property is at risk.
Who can file a Chapter 7 Bankruptcy?
Individuals, corporations and partnerships can all file under Chapter 7. However, only individuals can receive a discharge, which in many, but not all cases, is the goal of a Chapter 7 case.
Individuals with primarily consumer debts, whose income is above the state median income (which is a sliding scale depending on the size of your household) must pass a means test to determine if Chapter 7 is available to them. (If your debts are not primarily consumer debts, your income does not impact your eligibility to file a Chapter 7 case.
If your income is too high, or if you are behind on your home or car and wish to keep them, a Chapter 13 case may be necessary. We will help you evaluate all available options and work with you to ensure that the appropriate type of relief is pursued.
I’m married but my spouse may not want to file?
That’s fine! In some instances, where spouses have separate obligations, only one spouse needs bankruptcy protection. If you are not living separately, we will need your spouse’s income and expense information both for the means test as well as for your schedules. Don’t believe that a recent or impending divorce or separation precludes you from filing Chapter 7.
What about my home and car?
If you own and are financing a home, automobile or other asset that you wish to keep, you will likely need to enter into a reaffirmation agreement with that creditor. If you do not want to keep the asset, you will simply give it back. If you do enter into a reaffirmation agreement, with respect to that debt, it is essentially as if the bankruptcy did not occur. If you default on the agreement, the creditor can sue you and repossess the asset.
If you are behind on your home or car payments and wish to try and keep that property, a Chapter 13 case may provide you with the ability to do so. We will be glad to discuss that option with you.
The Process
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets. In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.
The courts must charge a case filing fee. Normally, the fees must be paid to the clerk of the court upon filing. With the court’s permission, however, individual debtors may pay in installments. . The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after filing the petition. Debtors should be aware that failure to pay these fees may result in dismissal of the case.
If the debtor’s income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:
- A list of all creditors and the amount and nature of their claims;
- The source, amount, and frequency of the debtor’s income;
- A list of all of the debtor’s property; and
- A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household’s financial position.
Among the schedules that an individual debtor will file is a schedule of “exempt” property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. Oklahoma has taken advantage of a provision in the Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal exemptions.
Filing a petition under chapter 7 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. But filing the petition does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.
Between 21 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the order for relief. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor’s financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting and answer questions.
It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The Bankruptcy Code requires the trustee to ask the debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. Some trustees provide written information on these topics at or before the meeting to ensure that the debtor is aware of this information.
In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert a chapter 7 case to a case under chapter 11, 12, or 13 as long as the debtor is eligible to be a debtor under the new chapter.
What about my credit?
A Chapter 7 Bankruptcy and Discharge will negatively impact your credit and can remain on a credit report for up to 10 years. However, if you are contemplating Bankruptcy it is likely that your credit report has already been negatively impacted.
341 Meeting
This is normally a brief meeting, conducted at the Bankruptcy Court, with you, your attorney and the case trustee. Your creditors have the right, but not the obligation to attend. In the time leading up to the 341 hearing, Aside from waiting for your case to be called, the meeting itself is generally 5 to 15 minutes.
What happens after the 341 Meeting?
If we have provided the trustee with all of the required documentation prior to the meeting, and if no issues arise from the meeting, you may have only 1 more obligation following its conclusion. You must take a second online credit counseling course. This second course, with the company we recommend, is $9.95. As with the earlier course, you are free to use a different company, but please ensure that they are approved by our Bankruptcy Court.
The Case Trustee
When a chapter 7 petition is filed, the U.S. trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets. If all the debtor’s assets are exempt or subject to valid liens, the trustee will normally file a “no asset” report with the court, and there will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors are no asset cases. But if the case appears to be an “asset” case at the outset, most unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. In the typical no asset chapter 7 case, there is no need for creditors to file proofs of claim because there will be no distribution. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim.
Commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all the debtor’s property. It consists of all legal or equitable interests of the debtor in property as of the commencement of the case, including property owned or held by another person if the debtor has an interest in the property. Generally speaking, the debtor’s creditors are paid from nonexempt property of the estate.
The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor’s nonexempt assets in a manner that maximizes the return to the debtor’s unsecured creditors. The trustee accomplishes this by selling the debtor’s property if it is free and clear of liens (as long as the property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property. The trustee may also attempt to recover money or property under the trustee’s “avoiding powers.” The trustee’s avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days before the petition; undo security interests and other prepetition transfers of property that were not properly perfected under nonbankruptcy law at the time of the petition; and pursue nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law. In addition, if the debtor is a business, the bankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will benefit creditors and enhance the liquidation of the estate.
With respect to distribution of the estate, there are six classes of claims; and each class must be paid in full before the next lower class is paid anything. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not particularly interested in the trustee’s disposition of the estate assets, except with respect to the payment of those debts which for some reason are not dischargeable in the bankruptcy case. The individual debtor’s primary concerns in a chapter 7 case are to retain exempt property and to receive a discharge that covers as many debts as possible.
