The fear of the unknown is one of the main reasons people suffer from bankruptcy phobia, which is an unreasonable fear of bankruptcy. It is understandable that people might be afraid of what happens when you file chapter 7 bankruptcy. They simply do not know what happens when they file Chapter 7. In most cases, Chapter 7 is a relatively straightforward process which involves little or no interaction with a judge. Many debtors do not even see the inside of a courthouse.

As a preliminary matter, most people qualify for Chapter 7. Their annual income must be below the average amount for that household size in that state. In Georgia as of May 15, 2021, that amount was about $92,000 for a family of four. Additionally, all debtors must complete some brief online courses.

Part of the Chapter 7 filing process includes ruling out some Chapter 7 alternatives. No two debtors are alike. So, there is no one-size-fits-all solution to crippling debt. Sometimes, the available alternatives are a better solution than Chapter 7. But in many ways, it’s hard to beat the benefits of this bankruptcy filing.

Of course, every bankruptcy case is different. Only an experienced Athens bankruptcy lawyer can accurately evaluate your situation and determine if Chapter 7 is the right choice for your family. There are many other available debt relief options. Once the debtor decides to file Chapter 7, the following events usually happen in the following order.

Initial Email or Telephone Bankruptcy Consultation

Every bankruptcy case begins with an assessment of your options. In terms of other options, our Athens bankruptcy lawyers normally look at non-bankruptcy negotiation or Chapter 13 bankruptcy.

Sometimes, the threat of filing bankruptcy is more effective than an actual filing. This threat serves as leverage in negotiations to reduce a loan’s UPB (Unpaid Principal Balance) or interest rate. To reduce the UPB, debtors usually need additional leverage, such as evidence of lender fraud or other wrongdoing. As for interest rate reduction, since rates are expected to remain low until at least 2023, a reduction is a real possibility.

If leverage is lacking, increasing the number of payments might be a good proposal. The debtor’s monthly payment amount decreases. At the same time, the bank makes more money, because it charges interest longer. So, this proposal is basically a win-win.

Chapter 7 is primarily for people with unsecured debts or people who don’t want to keep their houses, cars, or other secured property. In other words, what happens when you file chapter 7 bankruptcy is the beginning of a fresh start, and they want it now. In contrast, Chapter 13 is designed for people who want to repay their debts, but they need more time to do so.

In general, Chapter 13 gives people up to five years to repay past-due mortgage payments and other secured debt delinquency. At the 341 meeting, which is discussed below, the trustee and debtor work together to formulate a repayment plan. The monthly debt consolidation payment is usually about the size of a car payment.

When the protected repayment period ends, the judge usually discharges any remaining unsecured obligations. So, Chapter 13 debtors get a fresh start. They just don’t get it quite as quickly.

Initial In-Person Consultation

There is only so much that an Athens bankruptcy lawyer can do over the phone. There’s no substitute for an in-person consultation, A Zoom or other virtual meeting is almost as good. During coronavirus, what happens when you file chapter 7 bankruptcy happened virtually, but now you can have a meeting in-person.

Usually, the first order of business is verifying that Chapter 7 is right for you. A lawyer usually looks at your monthly bills. That additional inspection sometimes changes the recommendation of which debt relief approach is right for you.

One issue we commonly encounter is the size of an unsecured debt load. Many people believe that if they aren’t behind, they aren’t in trouble. Usually, that’s not true. As a rule of thumb, if your medical bills, credit cards, and other unsecured debts exceed 10 percent of your annual income, there’s no realistic way to pay off that debt. 

Debt renegotiation might reduce your debt load considerably. But debt renegotiation is not a magic wand which makes bills disappear. So, if you owe substantially more than 10 percent, debt renegotiation might be worth a shot. But many of these people might end up filing Chapter 7.

After they file Chapter 7 bankruptcy, the trustee usually requires debtors to produce documents, such as:

• Social Security card,
• Recent pay stubs,
• Government-issued photo ID, and
• Recent tax returns.

It’s usually a good idea to assemble these documents early, which is why our Athens bankruptcy lawyers often ask clients to bring them at the first meeting. That way, when the trustee requests them, you don’t have to scramble to find them.

The trustee often requests other documents as well, such as property records and insurance policies. The trustee has a legal obligation to confirm the debtor’s identity and investigate possible bankruptcy fraud concerns.

Finally, there are usually some housekeeping details, such as verifying contact information and signing the fee agreement.

Filing the Petition for Bankruptcy in Athens, GA

Preparing the petition is quite a task. A bankruptcy filing is infinitely more complex than an income tax filing. The petition and schedules demand specific information on all your bills, such as account number, monthly payment, and amount owed. There are many other information requirements.

In ye olden days, and by that we mean the early 2000s, Athens bankruptcy lawyers usually had to manually enter all this data. The same is true today, if you file pro se (without a lawyer) or use a bankruptcy petition preparer. In these cases, it could take several weeks to get a petition ready for filing.

Now, attorneys use advanced computer programs to prepare the paperwork. So, what used to take a few weeks now takes a few days. Moreover, an Athens bankruptcy lawyer can use the court’s Electronic Case Filing system to email everything to the court. Attorneys can also use the ECF system to pay filing fees and do other things, like request documents or file supplemental paperwork.

As soon as you retain us, you may refer any collections calls to our office. We can keep creditors at bay for a few days until the petition is ready to file and the Automatic Stay kicks in. More on that below.

Sometimes, a Chapter 7 filing cannot wait a few days. Occasionally, debtors come into our office with their hair on fire, at least metaphorically, because an eviction or foreclosure is scheduled for later that day. In these cases, we can transmit an emergency filing to the court. This bare bones filing triggers the Automatic Stay. The judge usually gives us two weeks to file the rest of the paperwork.

We also usually recommend emergency filings if the debtor is behind on car payments. Legally, banks can repossess vehicles after one missed payment. Additionally, most lenders electronically disable vehicle ignitions if the owner is only a couple of weeks behind.

Generally, it is rather easy to stop adverse action. But it’s very difficult to undo it. So, when it comes to emergency filings, it’s usually best to err on the side of caution.

Automatic Stay in Athens, GA

Many people file bankruptcy because creditors threaten to take adverse action, such as repossess a vehicle, foreclose on a mortgage, or file a collections lawsuit. Section 362 of the Bankruptcy Code instantly stops all these things, in most cases.

Technically, the Automatic Stay prohibits creditors from contacting debtors. The penalties for violating the Stay, even unintentionally, are quite severe. So, out of an abundance of caution, many creditors stop communicating with debtors altogether. That means no more monthly statements and no more pre-authorized ACH debits. Debtors must make alternative payment arrangements in these situations.

Generally, the Automatic Stay remains in effect as long as the bankruptcy is open. So, debtors have time to make catch-up payments if they are behind on secured debts. And, as outlined below, most unsecured debts are discharged, so the threat of a lawsuit or wage garnishment usually disappears entirely.

If the debtor has filed bankruptcy within the previous six months, the Automatic Stay might only have a limited effect. That’s especially true if the debtor has filed more than twice. There is essentially a presumption that these individuals are gaming the system to frustrate creditors. According to the Supreme Court, bankruptcy is a shield and not a sword.

Athens, Georgia 341 Meeting

About six weeks after debtors file their voluntary Chapter 7 petitions, there is a meeting with the trustee (person who oversees the bankruptcy for the judge). Chapter 7 creditors’ meetings are usually very brief. Most people spend more time waiting in the hall than they spend with the trustee.

As mentioned, the trustee usually reviews financial documents, looking for red flags of bankruptcy fraud, such as dramatic income changes. Trustees also look for income/lifestyle discrepancies. If Wanda drives a new Mercedes and claims she makes $30,000 a year, many trustees smell something funny.

The bankruptcy paperwork, specifically the Statement of Financial Affairs, also comes into play. For example, debtors must list all the payments they’ve made to creditors in the last ninety days. This question may seem like pointless busy work. But creditor preferences are illegal under the Bankruptcy Code. Benny cannot pay his rent two or three months in advance, unless his other creditors get the same treatment.

Finally, the trustee normally asks a series of yes/no questions to determine the debtor’s honesty. Your Athens bankruptcy attorney usually provides a script in advance of the meeting. This link is actually a Chapter 13 script, but you get the idea.

Athens Bankruptcy Lawyers and Adversarial Proceedings

If the trustee sees any red flags during the review, the trustee normally files a motion in court. Turnover motions are a good example. Technically, when debtors file bankruptcy, all their nonexempt property becomes part of the bankruptcy estate. That could include money in a savings or checking account. So, the trustee normally tries to force debtors to turn over these funds.

Athens bankruptcy attorneys typically settle these matters out of court. Let’s stay with the above example. An obscure legal doctrine called mootness sometimes applies in these situations. Assume you and I each claim ownership of a house, and we go to court. Before the judge issues a decision, the house burns down. Now, it doesn’t matter who owned the house, because the house is gone.

So, if the money at issue is gone, which it normally is, it does not matter whether the money belonged to the bankruptcy estate or not.

Discharge Disputes

Other times, discharge disputes arise. For example, student loans, which are unsecured debts, are only dischargeable if the debtor has an undue hardship. Georgia’s bankruptcy courts use the Brunner Rule in these situations. This rule narrowly defines an undue hardship as a financial hardship so severe that repaying the loan would force the debtor below the poverty line.

Additionally, the debtor must have a good payment history and the hardship must either be permanent or be expected to last most of the repayment term.

Partial Discharge Criteria

Unless the debtor has a severe physical, mental, or other disability that arose after s/he borrowed the money, a full discharge probably is not in the cards. However, most debtors who ask for relief receive at least a partial discharge, mostly because the judge generally refers these disputes to mediation.

Negotiating in Good Faith

During bankruptcy mediation, the bank has an obligation to negotiate in good faith. “You don’t qualify so go away” is not a good faith negotiating posture. Instead, the bank must make some sacrifices in order to resolve the matter. If that doesn’t happen, the judge is quite displeased.

Exemption Amounts

In a few cases, disputes arise over exemption amounts. That’s often because an item’s bankruptcy value is usually a lot lower than its fair market value. The Bankruptcy Code requires debtors to list an asset’s as-is cash value. Evangeline’s $5,000 TV set might fetch only $500 at a garage sale, even if the television is practically brand new.

For dispute resolution purposes, these matters usually don’t go to mediation. If an Athens bankruptcy lawyer shows the trustee proof of value, such as a written offer from a “we buy ugly houses” home investor, the trustee usually doesn’t file a motion.

Disputes also occasionally arise over financial windfalls, such as life insurance payouts and tax refunds.

Debt Discharge in Athens, Georgia

As mentioned, most unsecured debts are dischargeable in a Chapter 7 bankruptcy. What happens when you file chapter 7 bankruptcy is a “discharge”, where a judge eliminates the legal obligation to repay the debt. If the creditor took adverse action before the bankruptcy, like filing a lien, an Athens bankruptcy attorney must deal with these collateral matters separately.

Discharge is optional in most cases. For various reasons, some people voluntarily reaffirm unsecured debts. Examples include an internet service or other executory contract and a certain medical bill.

In most cases, a Chapter 7 lasts about six months from start to finish.

Let a Bankruptcy Attorney in Athens Tell You What Happens When You File Chapter 7 Bankruptcy

You get a fresh start when you file Chapter 7 bankruptcy. For a free consultation with an experienced Athens bankruptcy lawyer, contact Morgan & Morgan, Attorneys at Law, P.C. at (706) 843-2905. Home, after-hours, and virtual visits are available.

 

This blog was originally published on November 9, 2020 and updated on July 13, 2021.