A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court. In addition to the petition, the debtor is also required to file with the court several schedules (lists) of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, and a schedule of executory contracts and unexpired leases. The schedules and statements include the following information:
1. A list of all creditors and the amount and nature of their claims;
2. The source, amount, and frequency of the debtor's income;
3. A list of all of the debtor's property; and
4. A detailed list of the debtor's monthly living expenses (food, clothing, shelter, utilities, taxes, transportation, medicine, etc.).
The filing of a petition under Chapter 7 automatically stays most actions against the debtor or the debtor's property. This stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, garnish wages, or make telephone calls demanding payments. Creditors normally receive notice of the filing of the petition from the bankruptcy court clerk. One of the schedules that will be filed by the individual debtor is a schedule of exempt property. Federal bankruptcy law provides that an individual debtor can protect some property from the claims of creditors for two reasons: (1) it is exempt under federal bankruptcy law or (2) it is exempt under the laws of the debtor's home state. The following are a few examples of exemptions available under federal bankruptcy law: (1) the debtor's interest, not to exceed $15,000, in real property; (2) the debtor's interest, not to exceed $2,400, in one motor vehicle; (3) the debtor's interest, not to exceed $1,000, in jewelry; and (4) the debtor's right to receive social security benefits, unemployment compensation, veterans' benefits, and alimony (to the extent necessary for the support of the debtor and any dependant of the debtor).
Many states have taken advantage of a provision in the bankruptcy law that permits each state to adopt its own exemption law in place of the federal exemptions. In other jurisdictions, the individual debtor has the option of choosing between a federal package of exemptions or exemptions available under state law. Thus, whether certain property is exempt and may be kept by the debtor is often a question of state law.
A meeting of creditors is usually held 20 to 40 days after the petition is filed. The debtor must attend this meeting, at which creditors may appear and ask questions regarding the debtor''s financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting. The trustee also will attend this meeting. It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The trustee is required to examine the debtor orally at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy, including the effect on credit history, the ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect of reaffirming a debt. In some courts, trustees may provide written information on these topics at or in advance of the meeting to ensure that the debtor is aware of this information. To preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors.