A
Chapter 7 case begins with the filing, under oath, of a
petition, schedules of assets and liabilities, and a
statement of financial affairs. The petition is typically
filed with the bankruptcy court serving the area where the
debtor lives, or the business debtor has its main office or
is incorporated, or where it maintains substantially all of
its assets. A husband and wife who are legally married may
file one joint petition. Although married couples may file
together, there may be some strategic advantage to filing
individually in certain cases. Currently, the bankruptcy
court collects a $299 filing fee to cover court costs. This
fee is ordinarily paid in full upon filing. If a joint
petition is filed, only one $299 fee is charged. Upon the
filing of the petition an impartial trustee is appointed by
the Office of the United States Trustee to administer and
investigate the case, question the debtor under oath, and
liquidate any nonexempt assets, if any.
In order
to obtain Chapter 7 relief, a debtor must compile the
following information:
- A schedule of all creditors and collection agents (including agencies, attorneys and law firms), containing complete addresses, account numbers, amounts claimed due, and dates each debt was incurred;
- A schedule of the debtor's real and personal property; and
- The amounts of the debtor's monthly household income and living expenses, i.e., food, clothing, rent or mortgage payments, utilities, insurance, transportation, medical expenses, child care costs, and other necessary living expenses.
The Chapter 7 petition includes a schedule of exempt property. Exempt property is retained by the consumer debtor and is not available to the Chapter 7 trustee or the creditors. Federal bankruptcy law fixes dollar values for exemption of certain types of property. New Jersey follows this approach. However, many states, such as New York, have taken advantage of a provision in the bankruptcy statute which permits a state to adopt its own exemption law, in place of federal exemptions. Thus, whether certain debtor property -- such as a house, car, retirement plan, household goods, jewelry, cash, business equipment, or even a pending lawsuit or claim -- is exempt from the reach of the trustee and the creditors, can be a question of state law.
Scheduled creditors will receive notice of the filing of the petition from the bankruptcy court. Once the petition is filed, most actions by creditors to collect money is subject to an automatic court stay and must stop. Creditors, by law, are no longer permitted to initiate or continue their lawsuits, wage garnishments, attachments or other collection activity -- including telephone calls from collection agencies demanding payment.
After the petition is filed, a meeting of creditors under section 341 of the Bankruptcy Code is noticed. The debtor must attend this meeting and creditors are entitled to appear and ask questions regarding the debtor's financial situation and property. If both a husband and wife filed together, they both must attend the meeting of creditors. The trustee will preside at this meeting and question the debtor about the matters contained in the petition. It is important for the debtor to cooperate with the trustee. In order to preserve their independent judgment, bankruptcy judges decide questions of law but do not attend the meeting of creditors.
If the debtor has assets over and above what may be claimed as exempt, the trustee has the right to demand turnover of such assets to sell them. Depending upon the amount of nonexempt equity in the property, the debtor may sometimes be able to make an offer to purchase the trustee's interest in jointly held property. The money received at a public or private sale would then be available to pay claims of creditors. If, as is often the case, all of the debtor's assets are exempt, there would be no distribution to creditors and the debtor will retain all pre- and post-bankruptcy property, subject to any security interest or lien held by a secured creditor or leasing company. Certain transfers of property made by the debtor within 90 days before filing (within one year in the case of relatives or other "insiders") can be recovered by the trustee for the benefit of creditors through bankruptcy court litigation.