Bankruptcy Lawyer Serving Cecil, Harford and Baltimore Counties in Maryland
Chapter 7 is commonly known as a “liquidation” proceeding. It is also referred to a “straight” or “complete” bankruptcy. The primary purpose of a Chapter 7 case is to provide the debtor with a fresh start. In a Chapter 7 case, the bankruptcy trustee is permitted to seize and sell the debtor’s non-exempt assets and to distribute the proceeds from the liquidation of these assets to the debtor’s creditors. However, in the vast majority of consumer bankruptcy cases, the debtor will retain all of his or her property because it is exempt from seizure by the trustee under state or federal law.
Filing A Chapter 7.
The voluntary filing of a Chapter 7 petition constitutes an “order for relief” under Chapter 7 of the Bankruptcy Code, which sets the Chapter 7 process in motion and brings about the creation of the debtor’s bankruptcy estate. The filing of the bankruptcy petition which contains identifying information about the debtor such as name, address and social security number is the event that commences a bankruptcy case. In addition to filing a petition, the debtor is required to file several other documents including a property list, creditor list, schedule of monthly income and expenses and a statement of financial affairs. Within 21 days after the petition is filed, the court sends notice to the debtor and all creditors that the Section 341 Meeting of Creditors has been scheduled. The creditor’s meeting is typically held about 30 days after the after the case is filed.
Protection From Creditors.
Upon filing a Chapter 7, the debtor is immediately afforded the protection of the “automatic stay” provided by Section 362 of the Bankruptcy Code. The primary purpose of the automatic stay is to protect the debtor and the debtor’s property, including wages, bank accounts, personal property; and real property such as the debtor’s residence. The automatic stay stops all collection efforts by creditors, such as wage and bank garnishments. It also prohibits creditors from calling debtors, filing lawsuits against debtors and continuing to send collection letters. The automatic stay lasts for the duration of the case, which is typically 90 days.
Meeting Of The Creditors
In each Chapter 7 case, the debtor is required to appear at the Section 341 Meeting of Creditors. The creditor’s meetings are held at the office of the United States Trustee, which is located at the United States courthouse in Baltimore. The date and time of the meeting is randomly scheduled by the United States Trustee and is usually takes place about 30 days after the case is filed. In Baltimore, as many as three trustees conduct eight hearings per hour each day. Hearings begin at 9:00 a.m. and usually end by 3:00 p.m. The meeting is conducted by a Chapter 7 Trustee, who is a private attorney appointed by the court from the group of panel trustees. At the meeting, creditors are allowed to question the debtor under oath about his or her case. However, in the majority of Chapter 7 cases, creditors do not appear. The presiding Chapter 7 trustee will conduct the meeting lasting about 10 minutes and ask the debtor various questions about his or her debts, assets and monthly budget.
Chapter 7 Advantages
- Provides a fresh start and discharges most debts without requiring any repayment.
- Stops creditors from filing lawsuits to collect their debt.
- Stops creditors from calling you and sending collection letters.
- Stops existing wage and bank garnishments and prevents future garnishments.
- May discharge some state and federal income tax liabilities.
- Case can be filed and concluded within 90 days from filing date.
- Allows a debtor to surrender his or her home and discharge the mortgage debt, even if a foreclosure has been filed.
- If eligible for a Chapter 7 case you will not have to surrender any of your property.
Chapter 13 is commonly known as a “reorganization.” It is also referred to as a “repayment plan” or “wage earner plan.” Chapter 13 provides the debtor with opportunity to reorganize his or her financial affairs without having to liquidate assets. Chapter 13 is designed to allow the debtor to make monthly payments out of future income, typically wages, to repay some or all of his or her creditors. In a Chapter 13 case, the debtor is permitted to keep all of their property, whether exempt or non-exempt. In many instances, debtors who are not eligible to file a Chapter 7 case use Chapter 13. In addition, debtors seeking to stop foreclosure proceedings file a large percentage or Chapter 13 cases.
Filing A Chapter 13
A Chapter 13 case begins with the filing of a voluntary Chapter 13 petition. The petition in many ways resembles a Chapter 7 petition in that it includes a property list, creditor list, schedule of monthly income and expenses and a statement of financial affairs. In addition to these documents, the debtor must also file a Chapter 13 Plan, which essentially is the debtor’s plan of reorganization. Within 21 days of the case being filed, the court sends notice to the debtor and all creditors that a Section 341 Meeting of Creditors has been scheduled. The creditor’s meeting is typically held within 30-40 days after the case is filed.
Protection From Creditors
Immediately upon filing of a Chapter 13 case, the debtor is protected by the automatic stay of Section 362 of the Bankruptcy Code. The automatic stay stops all collection efforts by creditors and serves to stop wage garnishments and bank garnishments. The stay also prohibits creditors from repossessing the debtor’s personal property such as an automobile or conducting a foreclosure sale.
Chapter 13 Plan
Reorganization or adjustment of debts as an alternative to liquidation under a Chapter 7 proceeding is accomplished by filing a Chapter 13 Plan with the Court. The plan is filed with the court when the petition is filed and mailed to the creditors by the Court. The plan essentially provides for a monthly payment to the court that begins 30 days after the case is filed. Upon confirmation of the plan, the court will issue a wage order to the debtor’s employer, who will deduct the payments from the debtor’s pay each time they are paid. Self-employed or retired debtors without regular wages will continue to make voluntary payments during the term of their plan. The term of the Chapter 13 plan will be either 36 months or 60 months, dependent upon whether the debtor’s annualized income is above or below median income for the state in which they reside. The Chapter 13 Plan may provide for repayment of mortgage arrears, or other secured debt arrears such as automobile loans. In addition, the plan may provide for repayment of priority debts such as taxes and general unsecured creditors such as medical bills and credit card debts.
The debtor must begin making Chapter 13 plan payments within 30 days after the case is filed. Payments are made to the Chapter 13 standing trustee by mailing the payments to her payment address. A confirmation hearing must be held in every Chapter 13 case. The confirmation hearing is usually scheduled about 30 days after the Section 341 Meeting of Creditors and is conducted by the Bankruptcy Court judge who was assigned the debtor’s case when it was first filed. At the conclusion of the confirmation hearing, the court will enter an “order confirming plan” essentially approving the debtor’s Chapter 13 plan and proposed monthly payment. The effect of the court’s order is to bind both the debtor and his or her creditors to the terms of the plan. If the creditors and Chapter 13 trustee do not object to the terms of the debtor’s plan, the plan may be confirmed without the court conducting a hearing. The trustee will recommend confirmation of the plan to the court and the debtor’s appearance at the hearing is waived. Upon confirmation of the plan, the court will enter a wage order directing the debtor’s employer to deduct the plan payments from the debtor’s pay.
Chapter 13 Advantages
- Immediately stops your mortgage lender from selling your home at foreclosure.
- Pay back your past due debt mortgage payments through the Chapter 13 plan.
- Permits you to modify your mortgage after filing bankruptcy.
- Stops existing wage garnishments and prevents garnishments while in bankruptcy.
- Allow you to pay past due state and federal income taxes through the Chapter 13 plan.
- If qualified, may allow you to strip off a second mortgage or home equity lien from your home and discharge the debt.