Continuing on in our series, Mr. Aquia answers more commonly asked questions about Chapter 7 Bankruptcy
11. When should a chapter 7 case be filed ?
The answer depends on the status o the debtor’s dischargeable debts, the nature and status of the debtor’s nonexempt assets, and the actions taken or threatened to be taken by the debtor’s creditors. The following rules apply :
(a) Don’t file under chapter 7 until all anticipated debts have been incurred, because it will be another six years before the debtor is again eligible for a chapter 7 discharge. For example, a debtor who has incurred substantial medical expenses should not file under chapter 7 until the illness or injury has either been cured or covered by insurance, as it will do little good to discharge, say, $50,000 of medical debts now and then incur another $50,000 in medical debts in the next few months.
(b) Don’t file under chapter 7 until the debtor has received all nonexempt assets to which he or she may be entitled. If the debtor is entitled to receive an income tax refund or a similar asset in the near future, be sure to tell your attorney so that the attorney may properly exempt any property you stand to receive. Otherwise if not exempt, the refund or asset will become the property of the trustee.
(c) Don’t file under chapter 7 if the debtor expects to acquire property through inheritance, life insurance or divorce in the next 180 days, because unless such property is exempt, it will become the property of the trustee.
(d) If hostile creditor action threatens a debtor’s exempt assets or future income, the case should be filed immediately to take advantage of the automatic stay that accompanies the filing of a chapter 7 case (see Question 12, below). If a creditor has threatened to attach or garnish the debtor’s wages or if a foreclosure action has been instituted against the debtor’s residence, it may be necessary to file a chapter 7 or 13 case immediately in order to protect the debtor’s interest in the property.
12. How does the filing of a chapter 7 case affect collection and other legal proceedings that have been filed against the debtor in other courts ?
The filing of a chapter 7 case automatically stays (or stops) virtually all collection and other legal proceedings pending against the debtor. A few days after a chapter 7 case is filed, the court mails a notice to all creditors ordering them to refrain from any further action against the debtor. If necessary, this notice may be served earlier by the debtor or the debtor’s attorney. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the chapter 7 case was filed are not affected by the automatic stay.
13. May a person file under chapter 7 if his or her debts are being administered by a financial counselor ?
Yes. A financial counselor has no legal right to prevent anyone from filing under chapter 7.
14. How does filing under chapter 7 affect a person’s credit rating ?
It will usually worsen it, if that is possible. Still, if a person’s credit rating is bad to begin with, then alot of times the Chapter 7 Case actually will help to improve a person’s credit worthiness. Some financial institutions openly solicit business from persons who have recently filed under chapter 7, apparently because it will be a least eight years before they can again file under chapter 7. If there are compelling reasons for filing under chapter 7 that are not within the debtor’s control (such as an illness or an injury), some credit rating agencies may take that into account in rating the debtor’s credit after filing.
15. Are the names of persons who file under chapter 7 published ?
When a chapter 7 case is filed, it becomes a public record and the name of the debtor may be published by some credit-reporting agencies. However, newspapers do not usually report or publish the names of consumers who file under chapter 7.
16. Are employers notified of chapter 7 cases ?
Employers are not usually notified when a chapter 7 case is filed. However, in rare cases the trustee in a chapter 7 case may contact an employer if he is needing information as to the status of the debtor’s wages or salary at the time the case was filed.
17. Does a person lose any legal or civil rights by filing under chapter 7 ?
No. Filing under chapter 7 is not a criminal proceeding, and a person does not lose any civil or constitutional rights by filing.
18. May employers or government agencies discriminate against persons who file under chapter 7 ?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under chapter 7. It is also illegal for local, state, or federal governmental units to discriminate against a person as to the granting of licenses (including driver’s license), permits, and similar grants because that person has filed under chapter 7.
19. Does a person lose all of his or her property by filing under chapter 7 ?
Usually not. Certain property is exempt and cannot be taken by creditors, unless it is encumbered by a valid mortgage or lien. A debtor is usually allowed to retain his or her unencumbered (or unsecured) exempt property in a chapter 7 case. A debtor may also be allowed to retain certain encumbered (or secured) exempt property (see Question 28, below). The property that is exempt in a chapter 7 case is usually the property that is exempt from creditors under the law of the state where the debtor resides. In this State a debtor is allowed to exempt no more than $ 12,000 worth of personal property including equity in homes or cars.
20. When must a debtor appear in court in a chapter 7 case and what happens there ?
The first court appearance is usually about a month after the case is filed for a hearing called the “meeting of creditors.” At this hearing the debtor is put under oath and questioned about his or her debts and assets by the hearing officer or trustee. In most chapter 7 consumer cases no creditors appear in court; but any creditor that does appear is usually allowed to question the debtor. This is typically the only meeting that you will have.