Congratulations on taking the important step of filing for Chapter 7 bankruptcy to achieve a fresh financial start. This blog is designed to guide you through the bankruptcy process, explain your responsibilities, and clarify what you can and cannot do while your case is active. Our goal is to help you avoid common pitfalls and ensure a smooth process. If you have questions at any time, the staff at Michael H. Moody Law, P.A. is ready to help.
- The Bankruptcy Estate and the Trustee’s Role – When you file for Chapter 7 bankruptcy, a bankruptcy estate is created, which includes all your non-exempt assets as of the filing date. These assets are under the control of the bankruptcy trustee, who is appointed to manage your case. The trustee essentially “owns” these assets until they are abandoned (returned to you) or administered (sold or distributed to creditors).
- What this means for you:
- You cannot sell, transfer, lease, or give away any property (such as your home, car, or personal belongings) without the trustee’s permission. Doing so could violate bankruptcy laws and jeopardize your case.
- If you receive money or property (e.g., an inheritance, tax refund, or lawsuit settlement) during the bankruptcy, it may belong to the estate. Contact MHMP immediately if this happens.
- Always consult with your attorney before taking any action involving your assets.
- What this means for you:
- Restrictions During Bankruptcy – To protect the integrity of your case and comply with bankruptcy laws, there are specific actions you must avoid:
- Do not sell or dispose of assets. As noted, selling or transferring property (e.g., a car, house, or valuable items) without trustee approval is prohibited.
- Do not incur new debt. Avoid taking out new loans, using credit cards, or entering financial agreements without the guidance of your attorney, as these could complicate your case or be disallowed.
- Do not make large payments to creditors. Paying off certain creditors (especially friends or family) before or during bankruptcy could be considered a “preferential transfer” and may be reversed by the trustee.
- Do not hide assets or income. Full disclosure of all assets, income, and financial transactions is required. Failure to disclose could lead to serious consequences, including denial of your discharge.
- Do not ignore court or trustee requests. You must attend the Meeting of Creditors (also called the 341 Meeting) and respond promptly to any request for documents or information from the trustee.
- If you’re unsure whether an action is allowed, contact us at Michael H. Moody Law, P.A. before proceeding.
- Reaffirmation Agreements: Keeping Secured Property – In Chapter 7 Bankruptcy, you may have the option to keep certain secured property, such as a car or home, by entering into a reaffirmation agreement with the lender. This agreement allows you to continue making payments on the debt as if the bankruptcy did not occur, keeping the property in exchange for remaining legally responsible for the debt.
- How reaffirmation works:
- Eligibility: Reaffirmation is typically available for secured debts (e.g., car loans or mortgages) where the property is collateral.
- Process: You sign an agreement with the lender, which must be approved by the bankruptcy court. The court ensures the agreement is in your best interest and won’t create an undue financial burden.
- Our approach: We prefer to explore “retain and pay” options when possible, meaning you continue making payments without formally reaffirming the debt. This avoids re-obligating you to the debt post-bankruptcy, reducing future financial risk. However, not all lenders allow this, so we will review your specific situation.
- Considerations: Reaffirming a debt means you remain liable for it even after bankruptcy. If you default later, the lender can repossess the property and pursue you for any remaining balance. WE will help you weigh the pros and cons to make an informed decision.
- If you want to keep a car, home, or other secured property, let us know early so we can discuss your options.
- How reaffirmation works:
- Common Situations and How to Handle Them – Below are some frequent scenarios that Chapter 7 clients encounter, along with guidance on how to address them:
- You receive a tax refund during bankruptcy. – Tax refunds for the year of filing may belong to the bankruptcy estate. Notify us immediately if you receive or expect a refund
- You inherit money or property. An inheritance received within 180 days of filing may belong to the estate. Contact us as soon as you learn of an inheritance.
- A creditor contacts you. After filing, creditors should stop contacting you due to the automatic stay, which halts most collection actions. If a creditor contacts you, do not engage-forward the communication to us.
- You want to keep your car or home. Discuss your intentions with us early. We’ll review whether reaffirmation, retain-an-pay, or another option is best.
- You’re unsure about an asset’s status. If you’re uncertain whether an item (e.g., jewelry, furniture, or a bank account) is part of the estate, ask us before taking nay action.
- You need to move or change jobs. Inform us of major life changes, as they may affect your case (e.g., new income or relocation could impact exemptions or trustee inquiries).
- You receive a lawsuit or garnishment notice. The automatic stay typically stops lawsuits and wage garnishments. Forward any notices to us immediately for review.
- Your Responsibilities During the Process – To ensure a successful bankruptcy, you most:
- Provide complete and accurate information about your finances, assets, and debts.
- Attend the Meetings of Creditors (usually held 20-40 days after filing) and answer the trustee’s questions honestly.
- Notify us of any changes in your financial situation, such as new income, expenses, or assets.
- Follow our advice and avoid taking actions that could affect your case without consulting us first.
- What to Expect After Filing:
- Automatic Stay – This immediately stops most collection actions, including phone calls, lawsuits, and wage garnishments.
- Meeting of Creditors: You’ll attend a short meeting where the trustee and creditors may ask about your finances. We’ll prepare you for this.
- Discharge: If all goes smoothly, you’ll receive a discharge (typically within 60-90 days after the Meeting of Creditors), eliminating most unsecured debts (e.g., credit card debt, medical bills).
- Asset Abandonment: The trustee may abandon assets (return them to you) if they have little value to the estate. We’ll keep you informed about the status of your assets.
- Why We’re Here to Help – The Chapter 7 process can feel overwhelming, but our team is here to guide you every step of the way. Our goal is to help you achieve a fresh start while avoiding common mistakes that could delay or complicate your case. Always reach out to us with questions or concerns, no matter how small they seem.