The Automatic Stay/Suggestion of Bankruptcy. The automatic stay commences immediately upon the filing of the bankruptcy petition. It acts like a shield between you and your creditors during the bankruptcy. The stay prohibits the commencement or continuation of creditors’ judicial proceedings against you as well as all collection efforts. Your bankruptcy attorney needs to file a Suggestion of Bankruptcy in pending civil cases. so it is important that you provide your bankruptcy attorney a copy of any lawsuits you have received and the name and address of the creditor’s attorney. You may want to call your bankruptcy attorney’s office after you receive your 341 Notice to confirm that a Suggestion has been filed if you do not receive a copy. In most cases, the bankruptcy attorney’s filing of a Suggestion of Bankruptcy in your state court case does not mean that your bankruptcy attorney represents you in that case.
Relief from Stay. In Chapter 7 bankruptcy cases mortgage creditors typically file a Motion for Relief from the Automatic Stay so that they are able to foreclose on your secured property in the event you do not pay your secured debt in a timely manner. The bankruptcy court will usually grant this motion, but that does not mean that the creditor can take your property. The creditor can take your property only if you do not pay the loan in a timely manner under the terms of your mortgage or loan contract with the creditor, and only after the creditor forecloses its mortgage or lien in state court. If you are in default on an auto loan, the creditor can repossess the vehicle without filing to have the stay lifted if it has been more than 60 days since the originally scheduled creditors meeting and you have not reaffirmed the debt. When a secured creditor files a Motion for Relief From Stay the court will enter an Order granting the Motion once the objection period has passed. If an objection is filed, the Court will schedule a hearing.
The Chapter 7 Trustee. A Trustee is randomly appointed by the Court immediately upon the filing of a Chapter 7 petition. The Chapter 7 Trustee is usually a private attorney or CPA, and he is compensated primarily by a percentage of the non-exempt assets he is able to collect from you and distribute to your creditors. In Chapter 7 one job of the Trustee is to gather all of your non-exempt assets, sell those assets, and distribute the proceeds among all your unsecured creditors.
Meeting Your Trustee. Your meeting with your Chapter 7 trustee (the “creditors meeting” or “341 meeting”) is held in a conference room, not the courtroom. The federal bankruptcy judge is prohibited by law from being there. Typically this meeting will last about ten to fifteen minutes. The trustee will ask you questions about the information contained on your petition and schedules. Your attorney can tell you what questions to anticipate. The U.S. Trustee (a different trustee) sometimes attends these meetings to discuss issues with your means test computation.
You are required to attend the creditors meeting with the bankruptcy trustee (if filing jointly, both husband and wife must attend). Your bankruptcy attorney will accompany you and represent you at the meeting. As a practical matter very few, if any, unsecured creditors attend. The Chapter 7 Trustee’s job is to represent all creditors whether or not a creditor attends the meeting of creditors.
At the 341 meeting the Chapter 7 bankruptcy trustee will ask you questions, but he will not interrogate you, cross-examine you, or threaten you. The trustee may ask you why you filed bankruptcy and ask questions about your assets and your sources of income. The trustee often will inquire about information contained in your bankruptcy petition and schedules. As stated above, the U.S. Trustee may ask questions about your income and expenses to make sure you qualify for Chapter 7 bankruptcy and that your bankruptcy is not an abusive filing.
Creditors meetings are scheduled by the Trustee based on the Trustee’s schedule. Your bankruptcy attorney is not able to request a particular meeting date or time. If you are unable to attend the 341 Meeting you should notify your bankruptcy attorney at least one week in advance so your attorney can contact the Trustee for a continuance. The Trustee will schedule a “make-up” meeting approximately two weeks after the first date. If you do not attend the second meeting, the Trustee will move to have your case dismissed.
Trustee’s Objection to Exemptions. The Chapter 7 bankruptcy trustee has 30 days after the conclusion of the creditors meeting to object to any exemption of property claimed on your bankruptcy petition. Absent trustee objection, all property listed as exempt, including your homestead exemption, is exempted in bankruptcy and is not part of your bankruptcy estate and are therefore protected. If the trustee objection to a claimed exemption, the court will set a hearing to rule on your exemption. If there is no objection to your exemptions within 30 days after the conclusion your creditors meeting, you probably can do what you want with assets claimed as exempt on your petition. However, prior to disposing of or transferring any property (including exempt property), you should consult your bankruptcy attorney.
Transferring Property After Filing. Immediately upon the filing of a bankruptcy petition, a legal “estate” is created by law which consists of everything you own at the time you filed bankruptcy. This is called the “bankruptcy estate.” You should never sell, give away, or transfer any of your real or personal property which is part of your bankruptcy estate either immediately before or after the filing of your petition without checking with your bankruptcy attorney. You may transfer or sell property you claimed as exempt property on your bankruptcy petition if there is no objection made to the exemption within 30 days after your creditors meeting.
Creditor Adversary Claim. The majority of Chapter 7 cases do not involve adversary matters; however, if a creditor believes its claim should not be discharged, it may file, or threaten to file, an Adversary Case against you during the bankruptcy proceeding. The most common grounds for the filing an adversary case is “fraud.” Fraud in this context is not criminal, but it means that you allegedly have abused the bankruptcy process. For example, if you used credit to buy property or take cash advances prior to filing bankruptcy when you were insolvent, did not anticipate repaying the debt, or planned to file bankruptcy, this could be grounds to set aside a discharge of that debt for fraud, and the creditor may have a basis to file an adversary case.
Trustee Adversary Claim. The Chapter 7 Trustee may also file an adversary case to recover non-exempt property. A Trustee may also file a motion to value property which he believes you have undervalued in order to exempt under your $1,000 personal property exemption. If the Trustee convinces the court to increase the property value, he can then recover any of your property in excess of your exemption limit.