chapter 7 bankruptcy
What does bankruptcy do for me?
What types of debts does bankruptcy not wipe out/ discharge?
Can I discharge homeowner association fees?
What property do I get to keep?
Do I get to keep my tax refunds?
Who or what is the Trustee?
In preparing the bankruptcy petition, do I have to include all of my
Will my credit cards be canceled?
Does my personal bankruptcy filing stop my creditors from pursuing my
What happens at the Meeting of Creditors?
When will my Chapter 7 case over?
Can bankruptcy reduce the mortgage on my home?
1. What does bankruptcy do for me?
The goal of filing bankruptcy is to get relief from your debts. This is called a
“discharge.” Your bankruptcy filing will immediately stop the collection of all
debts (except family support orders); this includes putting a stop to collection
phone calls, lawsuits, foreclosures, repossessions and garnishments.
The discharge is a court order, issued at the end of the legal process,
confirming that the bankruptcy wiped out most unsecured debts, such as:
A Chapter 7 bankruptcy can also wipe out a second mortgage, although the lien on
your property will remain.
2. What types of debts does bankruptcy not wipe
out or discharge?
Several types of debts will not be wiped out by your bankruptcy discharge. Debts
that cannot be discharged generally fall under three categories:
money owed to the government,
court-ordered support of others, and
some debts incurred by bad conduct.
Examples of non-dischargeable debts include:
civil fines and parking tickets
criminal fines or restitution
Family Court orders, other than support
student loans (exceptions are rare)
debts incurred by fraud
There are many other considerations. For example, if you owe money on your house
or car, you need to keep making the payments if you want to keep that property.
3. Can I discharge homeowner association fees?
To the extent that the bill is from prior to the filing of bankruptcy, that
amount can be discharged as part of your bankruptcy. Anything due after your
filing is your responsibility, and you risk a lawsuit being filed against you in
4. What property do I get to keep?
State and federal laws provide protection for some of your property, which is
known as “exempt” property. The purpose of exempt property is to protect certain
basic necessities from creditors, and this applies also when filing bankruptcy.
Examples of exempt property include:
the homestead exemption of $150,000 in equity in a residence,
qualified pensions, 401(k) accounts and IRAs,
$5,000 in equity in a motor vehicle, and
$4,000 in basic household furnishings.
For more on
this topic, see "Exemption of Property in
Can I keep my car after filing the bankruptcy? It depends. If you owe money on
your vehicle, the debt will need to be paid. In some instances, the amount owed
can be reduced. If there is no money owed on the car (or less than its value is
owed), up to $5,000 is exempt.
My car is free and clear; should I transfer it to a relative or friend to keep
it safe? Transferring property before bankruptcy is a major lose-lose situation.
You can lose your exemption; worse, you may be committing fraud (a felony).
Should I cash out my 401(k), IRAs and life insurance before filing bankruptcy?
As was stated above, most 401(k) accounts and IRAs are exempt from your
creditors, in and outside of bankruptcy. The exemption law regarding the cash
value in life insurance is currently in flux, but cashing it without consulting
a bankruptcy attorney is a mistake.
(As an experienced bankruptcy attorney, Gary Stickell is well-versed in
exemption issues, in which he can review with you as part of your free
consultation on bankruptcy.)
5. Do I get to keep my tax refunds?
If a tax refund is owed to you at the time you file your Chapter 7 bankruptcy,
you will probably not be allowed to keep it.
The Trustee will demand turnover of any refunds owed to you prior to the filing
of your case. For example, if you filed on September 1, 2011, the Trustee would
be entitled to any tax refund, for tax years 2010 or before, that you had not
received prior to September 1, 2011. You will also owe a pro rata share of your
2011 tax refunds. For a September 1 filing, the amount owed is 8/12ths of the
year or 2/3 of the refunds.
It is your obligation as a Chapter 7 debtor to turn over to the Trustee any tax
refund. You do so by sending to the Trustee the refund check(s) without an
endorsement (i.e., do not sign the back of the check). Before doing so, you
should make and keep a copy of the check.
6. Who or what is the Trustee?
Every Chapter 7 bankruptcy case is assigned a Bankruptcy Trustee to administer
your non-exempt assets for the benefit of your creditors. (See related
For Chapter 7 filings, there is a panel of Trustees to whom cases are assigned
on a rotation basis. Trustees get paid based upon the value of the money and
other assets they administer on behalf of your creditors.
Bankruptcy Trustees are distinct from two other “trustees” that may be part of
your debt issues:
For houses in foreclosure, the foreclosure is done by “trustee sales.” These
trustees have nothing to do with your bankruptcy.
There is also the Office of the U.S. Trustee, which is an agency of the U.S.
Justice Department and is the “watchdog” of the bankruptcy process. The most
usual involvement of the U.S. Trustee in a Chapter 7 bankruptcy is to “police”
who is allowed to file a Chapter 7 under the “means test.” In extreme cases, the
U.S. Trustee is the prosecutor of actions to dismiss bankruptcy cases for fraud
and other misbehavior.
7. In preparing the bankruptcy petition, do I have to include all of my creditors?
Yes – every person, company, lender and taxing authority to which you owe money
must be listed; you cannot pick and choose which creditors to “file” on. This
includes your car lender and your mortgage lender, whether or not you plan to
continue to make payments.
8. Will my credit cards be canceled?
Generally, yes. Even credit cards that have a zero balance will probably be
9. Does my personal bankruptcy filing stop my creditors from pursuing my business?
No. Whether your business is a sole proprietorship, partnership, corporation or
LLC, we will list all of the business’s creditors to prevent them from pursuing
collection against you personally. However, this does not stop business
creditors from pursuing your business and contacting you as the business’s
10. What happens at the Meeting of Creditors?
Anyone filing a Chapter 7 bankruptcy must attend a meeting of creditors. In most
instances, no creditors will appear. The meeting will be conducted by your
Trustee, who will ask you a series of uniform questions followed by several
questions specific to your case.
Each Trustee has their own list of questions. However, the following questions
are always asked after the Trustee administers an oath that you will tell the
truth under penalty of perjury.
Did you accept the oath to tell the truth under the penalty of perjury?
Some variation of “How long have you lived in Arizona,” “Have you lived in
Arizona for more than two years,” or “Have you lived in Arizona for the greater
part of the last 180 days?”
Did you review the Schedules and Statements prepared by Mr. Stickell’s office
and is the information in those schedules and statements true to the best of
Did you list all of your assets?
Did you list all of your debts?
Have you filed bankruptcy within the last eight years? (Sometimes, have you
filed bankruptcy before?)
Have you reviewed the Trustee’s Information Sheet? (The Trustee and Gary Stickell’s office will have sent you a copy of that information sheet several
weeks before the hearing.)
Do you owe child support or spousal support to anyone?
Have you made any transfers within the last year that are not reported on your
Do you have the right to sue anyone for money or property?
Are you receiving money under a will or trust? Have you rejected your right to
receive money under a will or trust?
Some Trustees will ask you to verify under oath that what you have submitted for
identification is in fact your identification. The Trustee will want two forms
of identification from you: a government-issued photo ID and proof of Social
Security number from some third party. The best forms of identification are your
driver’s license and Social Security card. (If you do not have acceptable forms
of identification, your Meeting of Creditors may be rescheduled, and you may
incur an additional charge for Gary Stickell’s time.)
The proceeding is tape-recorded.
your peace of mind, consider the following:
Generally speaking, the most difficult parts of the Meeting of Creditors are (a)
finding a place to park and (b) the fears created by your imagination.
Gary Stickell attends all Meeting of Creditors with his clients. He does not
send associates or “fill-in” attorneys.
11. When will my Chapter 7 case over?
Your Chapter 7 case is not over when you get
In most Chapter 7 cases, the discharge of debts will occur 60 to 90 days after
the Meeting of Creditors. However, your case is not over until the Trustee has
fully administered your assets. This can include any tax refunds still owed to
you on the date that you filed your bankruptcy case and the tax refund for the
year that you filed. If the Trustee determines to administer any of your assets,
it can take six months to a year for your case to close.
Our office will notify you when your case is closed.
Even after a case is closed, the obligation to provide tax refunds to the
Trustee does not end.
Once you turn over your tax refunds or other property, the Trustee will begin to
administer your estate. This process starts with a notice to your creditors to
file claims. Once the deadline for claims to be filed passed, you will receive
mail from the Trustee (and Trustee's attorney regarding his or her fees, if
applicable), and then a proposal for distribution of the remaining monies. The
Trustee’s fee and the Trustee’s attorney’s fees are paid from the money
Once the deadline for those matters passes, your case will be closed. Until you
get that notice, you cannot sell any of your property without permission of the
Court. If you have some pressing need, consult our office regarding a Motion to
Compel the Trustee to Abandon that property and receive the Court Order.
12. Can bankruptcy reduce the mortgage on my home?
Neither a Chapter 7 nor a reorganization under Chapter 13 or Chapter 11 can
reduce the first mortgage on a personal residence.
A Chapter 7 bankruptcy will discharge the obligation to pay a second mortgage,
but the lien on the house will remain.
In a reorganization, the Court can order the removal of a second mortgage if the
value of the house is less than the amount of the first mortgage. Such a “strip”
is conditioned on the completion of the plan of reorganization.