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The Bankruptcy Process

How to file

The following is a very condensed description of the bankruptcy process in a "Chapter 7" case.

When most people think of bankruptcy, they think of a "straight bankruptcy" also known as a Chapter 7 liquidation proceeding. This is the most commonly filed bankruptcy case. It is an important option, especially for low-income debtors.

The other common form of individual bankruptcy is called a Chapter 13 petition that involves a "plan" by which the debtor pays his/her creditors from future income. As a practical matter, Chapter 13 petitions are rarely a good option for most low-income debtors.

In a Chapter 7 liquidation case, all of the debtor’s nonexempt assets are distributed to creditors, and the debtor receives a bankruptcy discharge at the end of the proceedings.

For those debts "secured" by property held by the debtor, the debtor must file a statement of intention with his/her petition concerning what the debtor proposes to do with the property. If the property is fully exempt, any lien placed on the property by the creditor will be "avoided" and the debt discharged leaving the debtor in possession of the property. If the property is not fully exempt (for example a house worth $25,000 where only $7,500 can be exempted) the court will not avoid the lien.

Some examples may help illustrate: If a house worth $7,500 is claimed as totally exempt using the $7,500 exemption for houses, judgment liens on the house of any amount may be totally avoided.

If a house is worth $10,000 and there is a $6,000 lien on it, the court will exempt $7,500 and avoid all but $2,500 of the lien.

For those cases where the debtor has some non-exempt assets (either secured or non-secured), there are rules for how those assets are to be turned over to the trustee and distributed to the various creditors. Debtors will often have the option of keeping the assets and paying to the trustee the value of the non-exempt assets. Those rules are beyond the scope of this article but suffice it to say that in the example above where the homeowner has $2,500 in non-exempt house assets, that homeowner can avoid having to sell the house if they arrange to pay to the Trustee $2,500 for distribution to the creditors.

As with all bankruptcy cases, the case is started by filing a petition along with other "schedules" and pleadings describing the financial situation of the debtor. Individuals can file. Husbands and wives can file together. The Bankruptcy Court charges a filing fee of $175. The filing fee can be paid in installments but it cannot be waived.

Meeting of the creditors

After the case is filed, the debtor will be sent a notice from the Bankruptcy Court informing him/her that a "meeting of the creditors" has been scheduled and that the debtor is required to appear. All of the creditors will also get notice of the meeting.

The meeting is conducted by a "trustee" who makes sure all of the papers in the case are in order and accurate and asks the debtor questions related to the petition and the debtor’s need for a fresh start. The creditors may attend the meeting, examine the documents and ask the debtor any questions they have. The creditors rarely appear in cases involving low-income debtors with primarily consumer debt and no assets.

Sometimes the trustee will ask for additional verification to document the petition (e.g. pay stubs, bank statements and pension documents) which the debtor must provide. In the typical case for a low income person the meeting ends with the trustee informing the debtor that s/he will be reporting the case as a "no asset" case.


After the meeting of the creditors the trustee will receive and consider any objections from the creditors and report the case to the parties and the Bankruptcy Court. For most low-income debtors, the case will be reported to the creditors as a "no asset" case. What that means is that the trustee finds no non-exempt assets available to be distributed to the creditors. Assuming no objections are filed, the Bankruptcy Court will grant the debtor’s discharge.

Life after discharge

Many debtors worry how filing for bankruptcy and getting a discharge of their debts will affect their credit and reputation. Usually a bankruptcy becomes part of a person’s credit history for at least 10 years. Though it may be part of a person’s credit history, it may not preclude future grants of credit depending on the circumstances leading up to the need to file for bankruptcy and the credit applicant’s current financial situation.

Note that it is illegal in many situations to discriminate against someone for having filed for bankruptcy protection. Some areas where discrimination is illegal are:

  • Generally, governmental units may not discriminate based upon a previously discharged debt.
  • Housing authorities and student loan agencies cannot deny benefits to a client based on a previously discharged debt.
  • Utilities may not deny service based upon a bankruptcy or discharged debts.
  • Private employers cannot discriminate with respect to employment or terminate employment based upon bankruptcy or debts discharged in bankruptcy.

Note that discrimination is permitted based on the person’s future financial responsibility or ability.

Used with Permission of Neighborhood Legal Services, Inc.


This information is general legal information that may or may not pertain to your particular circumstance. It does not substitute for a consultation with an attorney regarding your specific situation.


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This content was last modified on: 06/06/2017

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