The following is a general explanation of what happens after your Chapter 7 bankruptcy petition is filed with the court.
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. It is important that your attorney is provided with a copy of any lawsuits you have received and the name and address of the creditor’s attorney as you or your bankruptcy attorney should file a Suggestion of Bankruptcy in any pending civil cases. With the advent of required electronic filing of pleadings in all Florida state court cases, your attorney may prepare the Suggestion of Bankruptcy for you to file with the state court. If you have not received the form from your attorney, you may want to check with your bankruptcy attorney’s office regarding preparation and filing of the Suggestion of Bankruptcy.
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 mortgage payments in a timely manner. The bankruptcy court will usually grant this motion, but that does not mean that the creditor can immediately 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 formally 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. You should not file any pleadings directly with the bankruptcy court if represented by an attorney.
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 is compensated primarily by a percentage of the non-exempt assets collected from you. In Chapter 7 one job of the trustee is to gather all of your non-exempt assets, sell those assets (to either you or an outside party), and distribute the proceeds among 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 a courtroom. The federal bankruptcy judge is prohibited by law from being there. Typically this meeting will last about ten to fifteen minutes. Your attorney can tell you what questions to anticipate. A representative of the U.S. Trustee’s office (a different trustee) sometimes attends these meetings. You and your bankruptcy attorney are required to attend the creditors meeting (if filing jointly, both spouses must attend). 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 court 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 usually schedule a “make-up” meeting approximately two weeks after the first date. If you do not attend the second meeting, the trustee may 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, is exempted in bankruptcy and is not part of your bankruptcy estate. If the trustee objects to a claimed exemption, the court will set a hearing at which time you will have the opportunity to provide evidence supporting the 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 and did not anticipate repaying the debt, or after you 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 file a motion to value property which she believes you have undervalued in order to be under the $1,000 personal property exemption. If the trustee convinces the court to increase the property value, she can then recover any of your property in excess of your exemption limit.