Understanding the "Unknown"- What Happens When You File For Chapter 7 Bankruptcy?

by Natasha Meruelo, Esq.

Ok, so you've decided you need to file for bankruptcy and you're hoping this decision is going to lead to you becoming debt free and able to breathe easy again. The effect of a discharge certainly sounds good. However, what happens in between beginning the process and getting to the final result of obtaining a discharge is a gray area for many people who come to see me. So, I'm going to devote this post to explaining the Chapter 7 bankruptcy process further and perhaps this will also answer some of your questions.

At my office, after a client retains me and provides me with certain documents, they must take a credit counseling course. In the mean time, I prepare a client's case and request the client come into the office to review and sign their petition and schedules before it is filed (this is a simplified version of the process which usually involves a lot more analysis and review before a case is filed). It is important to emphasize that bankruptcy relief does not begin until a case is filed. Furthermore, your case cannot be filed until you complete the credit counseling course so don't delay! 

Once your case is filed, you are entitled to protection of the "Automatic Stay". This protection basically means that creditors are not permitted to collect pre-filing debts from you by calling you or communicating with you, garnishment of your paycheck stops and freezes on your bank account are lifted, and lawsuits come to a halt. Creditors may petition the court to continue certain lawsuits, such as foreclosure actions, however they must obtain permission to lift the Automatic Stay before they can continue a lawsuit.

So, the most immediate effect you will notice when your case is filed is that phone calls and harassing creditors should stop contacting you. Get ready for those "1-800" phone calls to stop.

A lot of behind the scenes work also begins at this point. The most typical example is that your attorney will communicate with the Trustee's office and provide him or her with certain documents such as a copy of your signed petition, pay stubs, tax returns, appraisals of assets and other documents that Trustee may specifically request. Your attorney may also engage in communications with certain creditors regarding your filing.

The next step in the process that you will experience is what is known as the Meeting of Creditors or "341a Hearing". This is a hearing you must attend and typically occurs about a month after your case is filed. At this hearing, you meet the Trustee who is assigned to your case and that Trustee may ask you a wide range of questions regarding your assets, income, expenses, financial history and how your difficulties arose. What happens at your hearing depends on the complexity of your case, whether you have assets that could be distributed for the benefit of your creditors and whether the Trustee has any additional questions or requests additional information. If your hearing is "closed", you are one step closer to obtaining your discharge.

After your hearing is over, you should make sure you take the second required course, known as the Financial Management course. You cannot obtain your discharge without taking this class. There are many other events that could happen between the 341a Hearing and obtaining your discharge. For example, creditors technically have until 60 days from the date of your hearing to object to your discharge or the dischargeability of any particular debt. The Notice of Meeting of Creditors that you receive in the mail will state what date the is last day for anyone to object. 

Other events may also need to happen prior to discharge. A common example is where a debtor wishes to reaffirm a particular debt, such as a car loan. This must be done within a certain window of time since an individual cannot reaffirm a discharged debt. So, although the Trustee may have "closed" your hearing or ended further inquiry into your case, this does not mean all the work in your case is done. It is very important you discuss what additional requests or supplemental services you may want your attorney to provide you with ahead of time so that important deadlines do not pass you by. In our court, for example, if you wish to participate in the Loss Mitigation Program, you must request this before your case closes. The same goes for stripping a judgment lien. It must be done before your case is closed or you may find yourself in a difficult predicament later when the only way to try to strip a lien is to go through the expense and time of re-opening your case (which is at the court's discretion). 

Typically, a person is eligible to receive a discharge 60 days after their 341a hearing and many courts will close a case the same day or within a few days of entry of the discharge. Once your case is closed by the Court, your case is officially over.

Questions or interested in a consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free of charge.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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