When an individual applies for bankruptcy, a Bankruptcy Estate is created. The bankruptcy estate consists of all of the debtor's property and equitable interests. This then falls under the control of the Trustee. The chapter 7 trustee is an individual appointed by the courts to administer the estate. He or she is tasked with locating and liquidating all of the debtor's assets and returning as much as possible to the creditors from the sale of the assets.
Before deciding to file a Chapter 7 petition, the debtor must pass a Disposable Income Test and a Means Test to determine if he or she fulfills the eligibility requirements. The Disposable Income Test is used to determine whether a debtor has sufficient disposable income, after deducting necessary monthly expenses, to pay off a portion of their unsecured debts. If the debtor's disposable income exceeds the statutory amount established for their location, they will fail the means test and be ineligible to file for Chapter 7 bankruptcy. The Means Test is the method used to determine whether a debtor earns more than the region's median income level. If their income is less than the median, they are permitted to file; however, if their income is greater than the median, they must use the Disposable Income Test.
Simultaneously with the establishment of the Bankruptcy Estate, an automatic stay is enacted to protect the debtor from any additional collection efforts by their creditors. This safeguards the debtor against creditors initiating litigation, garnishments, or even foreclosure proceedings against the debtor. Creditors are prohibited from sending debtors collection letters or assessing additional charges and fees. This is beneficial for both creditors and debtors. The debtor is no longer burdened by collection efforts, and the creditors can rest assured that an effort will be made to pay each and every creditor an equitable distribution of the assets, rather than allowing one creditor to seize all the assets. This Automatic Stay will continue to be in effect until the bankruptcy is dismissed or discharged.
The exemptions permitted by the Bankruptcy Code permit a Chapter 7 individual debtor to retain some of their assets. Exemptions are statutorily defined assets that an insolvent may exclude from the bankruptcy estate administration. However, some states offer their own exemptions, and the debtor is permitted to utilize either the state or federal exemption laws. Currently, the homestead exemption in Indiana is $7,500 for an individual and $15,000 for a married couple filing jointly. A debtor may also retain up to $8,000 in personal property, or $16,000 if married and filing jointly. The statutes pertaining to a debtor's possible exemptions are dispersed throughout the state of Indiana. Some fall under title 34, while others fall under title 27, but you should always search for additional exemptions under section 522 of the Federal Code. There are varying exemption amounts for whole life insurance policies, automobiles, business partnership property exemptions, exemptions for crime victims' benefits, unpaid wages still owed to the debtor, earned income tax credits, health aids, jewelry, household goods, tools of the trade such as uniforms, personal injury claims, retirement accounts, and government benefits such as Social Security. There are numerous exemptions available, dependent on the state and the individual's situation. It is the responsibility of the debtor's bankruptcy attorney to determine which exemptions apply.
One of the debtor's primary concerns is, ""How long will this take?""
There is a 15-day deadline following the filing of the petition for filing certain financial """"schedules"""" with the court-documents declaring your assets, liabilities, expenses, income, and a statement of your affairs. Typically, these schedules are included with your initial petition. The courts will mail the Notice of Commencement of Case to the debtor and all creditors listed in the petition approximately 15 days after the petition is filed. This notice will inform the debtor of the court-ordered date for the creditors' meeting, as well as the deadlines for creditors to submit objections and claims against the debtor. Within 30 days after filing a petition, or prior to the meeting of creditors (also known as a 341, or 341 meeting), you are required to file a Statement of Intention informing the court whether the debtor intends to retain the secured property that serves as collateral for their secured debts, or whether the debtor intends to surrender the property. If the debtor wishes to retain the property, he or she can reaffirm the debts and continue making payments on those debts, or the property can be sold at fair market value. Within 45 days of filing the Statement of Intention, the debtor must either relinquish or retain the property specified in the Statement.
Sixty to ninety days after the bankruptcy petition is filed, there will be a Meeting of the Creditors, also known as a 341 Meeting. The trustee will require the debtor to testify under oath regarding the veracity of their petition. The client, the debtor, must attend the 341 hearing. If the debtor is absent, the petition will be thrown out. Within 45 days of filing, evidence of any compensation received from any employer within 60 days of filing, a detailed monthly income statement, and an estimate of any anticipated increase in income or expenditures over the next 12 months must be submitted.
Within sixty days of the 341 hearing, the trustee and any creditors who object to any of the exemptions in the petition must file their objections. Creditors can object to the discharge of a debt if it was obtained through fraud or larceny, personal injury claims from a DUI or DWI, or divorce-assigned debt. A federally backed student loan is another type of debt that cannot be discharged absent a persistent inability to repay it due to poverty or disability. Child support and alimony orders cannot be discharged either. Creditors may also object to the discharge if bankruptcy fraud, spoliation of necessary records, failure to explain losses, or non-response to interrogatories is discovered. Proofs of claim must be filed within 90 days after the first date scheduled for the 341 hearing if they wish to share in the payments from your case if any assets are available for liquidation, despite the fact that in a Chapter 7 bankruptcy there are typically no assets to divide.
It is essential to address specific dates with the debtor, such as the 341 meeting. The trustee will ask the debtor queries such as """"Have you recently repaid any debts to family members?"""" and """"How did you acquire your unsecured debt?"" It is essential that the debtor be prepared to answer questions about their finances dating back at least 180 days and bring any financial documents that may help to explain their circumstance, as well as a copy of their most recent tax return. Also required are identification and a social security certificate. The trustee is attempting to ensure that there have been no preferential transfers (paying off one creditor in order to benefit them more than another creditor) or fraudulent transfers (transferring assets to another without consideration in order to obstruct, delay, or defraud creditors). If it is determined that a preferential transfer has occurred, the trustee may recover the funds from the preferred creditor and distribute them more equitably among the remaining creditors. If fraudulent transfers are discovered, the petition may be invalidated and the debtor may be barred from filing for bankruptcy or even sent to prison. Ensure that your debtors are truthful when filing for bankruptcy. Additionally, certification of debtor counseling must be included in the petition by the deadline to prevent dismissal of the case. Since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 went into effect, debtor counseling has become a requirement. This certification is frequently neglected by debtors, particularly those who filed prior to the BAPCPA. After all, the purpose of bankruptcy is to give the insolvent a clean slate, so this may be the first time they've ever received advice on how to avoid debt.""
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