What is a “Chapter 7” Bankruptcy?
A Chapter 7 bankruptcy is the most common type of consumer bankruptcy. A Chapter 7 bankruptcy typically will “discharge” or eliminate credit card balances, medical bills and most other “unsecured debt,” meaning debt that has not attached as a lien against your real estate or personal property. In nearly all cases, a debtor may keep belongings and property after a Chapter 7 bankruptcy. If a person has debts but is current on house and car payments, the person can usually keep making payments on a house and car to retain possession.
To facilitate the intake process, we provide intake forms to facilitate the process of filing for bankruptcy protection.
The first step in filing for bankruptcy in Minnesota is to meet with Lauri Ann Schmid, our bankruptcy attorney, for a free consultation. During the consultation, Lauri will review your intake form, examine your assets, assist with a budget and review your debts. After the review, Lauri will have the background information necessary to give you proper legal direction for your debt relief.
A Chapter 7 bankruptcy usually takes about three months from case filing until discharge, costs $335 in court filing fees (a bankruptcy attorneys’ fees are additional) and usually requires one court appearance in front of a trustee, who works for the court.
Minnesota Bankruptcy Means Test
If you would like to file a Chapter 7 bankruptcy, you must pass the Minnesota means test. The test only applies to higher income parties, which means that if your income is below the Minnesota median for your household size, you do not need to qualify under the means test. If your income is higher than the Minnesota median you will need to complete the means test calculation to determine if you can pay back a portion of your unsecured debts through a Chapter 13 bankruptcy.
Payment for Fees
Current law requires that all bankruptcy attorney fees be paid before a case is filed in a Minnesota court.
The law requires a person filing a Chapter 7 bankruptcy to take two financial classes. The first class, called Credit Counseling, is required before a bankruptcy petition can be filed. The class helps people to examine their personal financial situation. The second class, called Debtor Education, is a requirement of receiving a discharge or elimination of debts. The second class is designed to help debtors plan for their financial future after bankruptcy.
After we receive the information we need from you, we will prepare a Chapter 7 bankruptcy petition, which must be reviewed and signed by the client. Accuracy is our priority. After the petition has been reviewed and signed, it is filed with the court.
The Automatic Stay
Debt collectors can be aggressive. However, when a Chapter 7 bankruptcy petition is filed, all debt collection efforts must stop because of an “automatic stay” that takes effect under federal law. While the automatic stay is in place, garnishments, collections and repossessions are disallowed.
The Meeting of Creditors
About one month after filing a Chapter 7 bankruptcy, a debtor is required to attend a “meeting of creditors.” This is usually very brief. At the meeting, the trustee assigned to the case will ask questions about assets, liabilities and general financial information. If issues are raised by the trustee, additional information may be requested. If not, a debtor will wait approximately 60 days before a federal bankruptcy court judge will sign the “order of discharge,” which eliminates the debts that were part of the “bankruptcy estate.”
The order of discharge is the first step in repairing credit at the end of a bankruptcy. Debtors should take steps after bankruptcy to rebuilt credit. Slowly, better interest rates will become available. A debtor may be able to purchase a home three to four years with the appropriate credit rating.