FAQ - Questions About Chapter 7

• What's the difference between Chapter 7 and Chapter 13?
• How much information do you need from me to file my petition?
  
• Will all of my property be sold in Chapter 7?
  
• What happens at the section 341 meeting?
  
• How long will this take?
  
• Can I still file a Chapter 7 under the new law?
• Someone told me I'll never be able to get credit again. Is this true?
  
• What happens with my student loans? Are they discharged?
• How much will this cost me?
  

Questions and Answers

Chapter 7 is known as “straight” or “liquidation” bankruptcy. In it, the trustee will take possession of all nonexempt property and liquidate it (convert it to cash) for the benefit of your creditors. In Chapter 13, you propose a payment plan to your creditors, the trustee, and the Court, which must approve the plan by confirmation. At the end of the liquidation process, if there is one, or at the end of the payment plan (occasionally sooner in special circumstances of hardship), you receive a discharge which releases you from personal liability for most debts (but not all). For more information about the discharge, see this page of the FAQ.

Like most consumer bankruptcy attorneys, I utilize a lengthy 20+ page form questionnaire to gather information about your financial affairs prior to drafting your petition and schedule. (Some attorneys also utilize a web-based system; I have not thus far been suitably assured of my clients’ confidentiality rights being properly safeguarded in such programs and have therefore elected to stick with the traditional paper-based model. However, I am continuing to look into the technology and may implement it in 2007.) This questionnaire seems far-reaching and invasive; believe me, I know it can feel impossible at first. But gathering this information is critical to the success of your bankruptcy case. It is required by law, and it has the added bonus of making many debtors feel more empowered over their finances. Most people take a week or more to complete the questionnaire; for some people, it could take weeks, depending on the type of records they’ve maintained. If you'd like to take a look at it, just to see what you'll be asked for, or to get a head start, download the PDF version of my form by clicking here. Remember: no one sees this form but me.

Will all of my property be sold in Chapter 7?

Absolutely not. Your property is protected to a great degree by various sets of exemptions. These exemptions are provided for in state law in South Carolina, which has opted out of the federal exemption scheme. However, some debtors who have recently relocated to this state may find themselves having to file using the protection of other states’ exemption schemes – possibly even the federal scheme – in certain circumstances, thanks to the new law. For more information about the new law, visit this page of the FAQ. For answers to other questions about property in bankruptcy, visit this page of the FAQ.

What happens at the section 341 meeting?

Many debtors are intimidated by the thought of sitting down “on the record” and testifying as to their financial affairs in front of the trustee and their creditors. However, it is usually not a confrontational affair, assuming your petition and schedules list all of your property and neither omit nor misrepresent any material facts. It is important, however, that you be familiar with those documents, and your supporting documents, prior to the meeting. The 341 meeting is not a court appearance, per se, but it is important nevertheless. Your truthful testimony is necessary; anything else can lead to a dismissal of your case, a denial of your discharge, or worse – even including criminal prosecution and penalties.

How long will this take?

While there’s no such thing as a “typical” case any longer, it can take six months, at a minimum, from filing to discharge.

Can I still file a Chapter 7 under the new law?

Whether you will be eligible to file for a Chapter 7 case depends on your “current monthly income” as defined by the Code. That number, in turn, depends on all your income from all sources (with some exceptions) over the six months prior to filing, divided by six to get a representative number. If that number compared to a state median income figure for a household of similar size is less than the median, you may file Chapter 7. If your CMI is above the median, you must go through the full means test calculation, using national and local standards set by the IRS for typical expenditure categories, to see whether your remaining income rebuts the presumption of abuse. Your attorney can help you by crafting an argument that special circumstances exist to rebut the presumption (assuming they do in fact exist) if you should “fail” the means test.

Someone told me I'll never be able to get credit again. Is this true?

Not at all. In fact many debtors receive offers of credit before their cases are even closed. While you should be very careful about taking on more credit after bankruptcy (and look extremely closely at all terms), rest assured that with good financial management and diligence, you will most likely qualify for credit after your discharge. The reason is quite simple: once your debts are discharged, you are at least theoretically less of a credit risk to creditors.

What happens with my student loans? Are they discharged?

The vast majority of student loans will not be discharged in either Chapter 7 or Chapter 13. To receive a discharge on student loans, a debtor must show extreme circumstances that create a significant hardship. This is a test that is very difficult for debtors to meet in practice. However, with other debts discharged, many debtors find making those monthly student loan payments much easier.

How much will this cost me?

My fees for Chapter 7 start at $1,500.00 per case. Additional services (such as adversary proceedings, or unexpected court appearances) are billed at either a quoted flat rate (given to you prior to my undertaking the specific service) or an hourly rate of $175. In addition, you will have to pay a filing fee which is set by the Judicial Conference; as of December 2006, the filing fee for Chapter 7 is $299. Finally, you will have expenses for the required credit counseling course, the required debtor financial management education course, and the costs for any necessary appraisals or other professional services necessary for the filing of the petition.

DISCLAIMER: This website and its contents are meant as a general discussion of certain legal issues and not as a statement of fact, of legal advice, or as a legal opinion. No attorney-client relationship is formed by your visiting this site, clicking on its links, utilizing the resources provided herein, or otherwise, and no such relationship exists until a signed retainer agreement has been delivered to the Law Office of Sheryl Sisk Schelin with the appropriate fee. You should not rely on or act upon any information contained herein or on any other website without first seeking the services of a competent attorney licensed to practice in your jurisdiction. Sheryl Sisk Schelin practices law only in the State of South Carolina, and is not authorized to render legal services in any other jurisdiction.

The Law Office of Sheryl Sisk Schelin is a debt relief agency under the laws of the United States, including the Bankruptcy Code, and assists its clients by helping them to file for relief under the Bankruptcy Code, among other solutions, and as appropriate to their individual needs.