Chapter 7 bankruptcy is sought after by individuals who have amassed debt they cannot repay. It is also known as straight or liquidation bankruptcy because the provisions of Chapter 7 focus on an assets liquidation strategy to repay debt. This means that a core prerequisite for filing Chapter 7 bankruptcy is that filers must be willing to sell their non-liquid assets to generate cash for debt payment.
Once a debtor has successfully filed for Chapter 7 bankruptcy, the court issues an automatic stay injunction to prevent creditors from taking further actions against the debtor. This may include threats to sue, wage garnishment, or forcefully acquiring the debtor's assets.
The following paragraphs will explain Chapter 7 bankruptcy in detail and how bankruptcy software NextChapter can be used to simplify the bankruptcy filing process. Let's get into it!
How Does Chapter 7 Bankruptcy Work?
From the brief description above, you've probably deduced that, unlike Chapter 13 bankruptcy, Chapter 7 does not prescribe a repayment plan for filers. Instead, it authorizes the appointment of a bankruptcy trustee who will facilitate the liquidation of the debtor's assets and use the proceeds to pay off debts. However, assets such as automobiles, home equity, household appliances, and other personal possessions required to maintain basic living standards are not viable for sale; they are referred to as exempt assets.
Steps Involved in Filing for Bankruptcy 7
Another important element of Chapter 7 bankruptcy filing are the prerequisites involved. Chapter 7 bankruptcy is available to almost everyone, including partnerships and business entities, but primarily individuals. Nevertheless, there are specific criteria which filers must ensure they meet before they're considered eligible to enforce their Chapter 7 rights. Similarly, specific steps must be taken to guarantee debtors have a chance at a fresh start.
Below are the steps to ensure a successful Chapter 7 bankruptcy filing:
The Means Test is enforced by law to prevent filers from taking undue advantage of the Chapter 7 provisions. Essentially, the test juxtaposes the debtor's income in the past six months with the total debt owed. This way, the court can objectively tell whether a filer can pay off their debts.
If the test proves the debtor can gradually pay debts, he will be denied any claim to Chapter 7 provisions. Where the debtor agrees, the court can convert the bankruptcy option to Chapter 13 bankruptcy. This gives filers a feasible repayment plan, allowing them to keep their assets while paying off debts over three to five years.
Filers are required to undergo credit counselling some six months before filing for Chapter 7 bankruptcy. This counselling course must be obtained from an approved provider, and a certificate of completion will be presented to the court during the hearing.
There are a few circumstances where the court may waive the credit counselling prerequisite for debtors, for instance, where a filer has no access to an approved provider.
Once applicants have received their certificate of completion from their credit counselling providers, the next step is to gather all the necessary paperwork. Documents required include tax returns, credit reports, bank and brokerage statements, retirement account statements, vehicle registrations, and real estate evaluations.
Additionally, applicants will be asked to fill out certain forms which detail personal information, such as the debtor's finances, creditors, assets, income, and expenses. These forms are usually available on the United States Courts website.
Once all necessary forms needed for bankruptcy filing have been filled, applicants should print and compile all the paperwork as they will be required for referencing at the bankruptcy court.
Lastly, filers must pay court fees (the amount varies in different states). If you cannot afford to pay the full amount at the time, you can request to pay in installments or petition to waive your court fees.
Meeting with Bankruptcy Trustee and Creditors
Once all necessary documents have been compiled, filers will be appointed a neutral party known as a bankruptcy trustee whose duty is to review the available documents to ensure applicants are ready to commence their bankruptcy process.
After assessing the debtor’s financial position, the bankruptcy trustee will decide what assets can be liquidated to settle creditors. He is also responsible for scheduling the creditors’ meeting, as provided in section 341. As the name implies, the creditors’ meeting provides an avenue for all parties (the debtor, trustee, and creditors) to discuss the current state of affairs and the possibility of debt repayment.
Payment of Debt
After reviewing the debtor's personal finances and meeting with creditors, bankruptcy trustees will sell nonexempt assets and hand the cash over to creditors. Once this is done, filers have to wait till they're informed that their debts have been discharged. The Chapter 7 bankruptcy filing process takes four to six months to complete.
NextChapter Chapter 7 Features and Integrations
LegalTech trailblazer NextChapter has integrated several features to facilitate bankruptcy filing. Below, we will list some of these tools and their unique functions.
The ECF Integration allows users to review and file Chapter 7 bankruptcy to ensure absolute accuracy. The software double-checks the information provided to ensure all the required information for filing has been entered.
This section also allows users to create customized bankruptcy petitions suitable for any district court. Bankruptcy petitions are customized by reorganizing the order of the schedules and choosing to file forms as separate event codes. This way, users can design custom-made bankruptcy petitions to the specifications of the judge, clerk, and district.
After customizing a petition, users can store it as a new filing template so that such a template can be recycled for clients with similar circumstances. For the newbies, NextChapter provides filing templates to assist you in designing your first set of templates.
With the ECF Integration, users can process bankruptcy filings without any need for manual filing on the court's site. Simply click the Start ECF Filing icon, and your petition will be sent to the court!
Credit Report Integration
NextChapter's Credit Report Integration system enables users to import credit reports directly from Xactus into Schedule F. NextChapter achieved this seamless credit report integration system by partnering with Xactus to generate and upload reports swiftly and efficiently.
When you order a report through NextChapter, the software automatically imports the creditor's information from a tri-merged report from all three bureaus: Transunion®, Equifax® & Experian®.
An obvious advantage of an interwoven system for sharing credit reports is that there's less data entry, and users can execute the entire process of obtaining credit reports via a single platform.
Client Document Storage
The Client Document Storage tool eliminates the redundancy in preparing legal forms and documents. In other words, manual data entry is replaced by a series of automated processes, allowing for greater efficiency and customization while reducing costs and errors.
With NextChapter Notices, court documents are categorized to enable users to find notices easily. Features such as document quick view, tags, and an in-built export tool allow users to keep track of court notices while keeping PACER costs as minimal as possible.
Court Notice Management
Aside from saving and organizing court documents, the NextChapter Notices feature can be used to schedule hearings and reduce PACER fees for your law firm. Once a hearing notice is received from the court, NextChapter automatically sends court documents to the user's Notices Inbox, labelling them by type before allocating notices to the correct case and adding hearing dates to the calendar.
In addition to the amazing features mentioned above, NextChapter offers tools to ensure secure online payments for legal experts. The Payments Integration system for attorneys allows users to obtain and process legal payments. This way, employers can design a payment system backed by reliable software that automates payment processing.
This feature also allows users to recover outstanding bankruptcy fees from clients while providing a real-time overview of payments on the dashboard. Should the need arise, users can access previous client-specific payment records to use as points of reference.
Filing for Chapter 7 bankruptcy can be tedious and complicated; however, with expert legal consultation and excellent bankruptcy software such as NextChapter, you streamline your bankruptcy journey and are more likely to be successful in court.
NextChapter provides a demo version of their software; take a chance and sign up for NextChapter, and you'll never look back!