Interviewer: So, first of all, who are the other individuals involved in the bankruptcy? For example, what is the role of the trustee?
Paul: In a Chapter 7 bankruptcy, there’s a trustee that’s appointed by the court and there’s always a judge assigned as well. In most cases, the only person who the debtor is going to appear in front of is that Chapter 7 trustee. Also, every case is overseen by the U.S. Trustee’s Office, which is, in general, an overseer and is usually not actively involved in the case unless certain elements arise.
Very rarely in a Chapter 7 case is a debtor appearing in front of a bankruptcy judge. In a Chapter 13 case, there is a Chapter 13 trustee who is assigned, which is a permanent position. So there’s only, in Pennsylvania, for example, two standing trustee offices, and they oversee the case, which is, again, a much longer process because a Chapter 13 bankruptcy is going to last anywhere from three to five years. There will be judge assigned to the case, as well, and, again, there’s a U.S. trustee that generally oversees all bankruptcies.
In most cases, both in a Chapter 7 case, as well as a Chapter 13 case, the debtor is only really meeting with a Chapter 7 trustee or a Chapter 13 trustee and occasionally, in a Chapter 13 case, they’re sometimes meeting with the bankruptcy judge.
Interviewer: So, what’s the job of the trustee? Are they there to just take everything they can from you and give it all to the creditors?
Paul: No, not at all. There is a different role that a Chapter 7 trustee plays though than the Chapter 13 trustee. As long as the person filing meets the qualifications and their property doesn’t exceed the amount that they’re allowed to keep, which is, again, known as “the exemptions,” then the Chapter 7 trustee will simply then recommend discharge, in which case he or she closes the case and discharge is granted within 60 to 90 days after that meeting.
In a Chapter 13 case, the role of the Chapter 13 trustee is a little bit different. A Chapter 13 trustee is also conducting a meeting, and he or she is going to be receiving the funds that are paid by the Chapter 13 debtor and making distributions to creditors based on the plan, whether they’re paying mortgage arrears or whether they’re splitting some of the payment among unsecured creditors, such as credit card companies. So, the Chapter 13 trustees are ones responsible for thereafter making the payments consistent with the plan.
How Long Does a Bankruptcy Take to be Discharged
Chapter 7 bankruptcy can be discharged within 60 to 90 days. Chapter 13 bankruptcies may take 3 to 5 years to discharge.
Interviewer: So, Chapter 7 filing seems to happen pretty quickly. The whole processes takes only about 60 to 90 days?
Paul: Yes. From the time the bankruptcy is filed, a Chapter 7 debtor usually receives a discharge anywhere from 60 to 90 days. In the Chapter 13 process, it’s usually anywhere from 3 to 5 years because of, again, the nature of the process and there’s going to be payments being made. That’s from the date of filing.
How Many Court Appearances Are Required for Bankruptcy?
Interviewer: Can you explain how many times a person may have to appear in court? Does a person go to court just once for a meeting of creditors or a trustees meeting?
Paul: In most cases, the debtor has to appear at one hearing. In a Chapter 7 case, there’s a meeting of creditors and there is a meeting for a Chapter 13 case, as well. However, there are more potential issues, because of the nature of the case and the time that’s involved in a Chapter 13. So, there is a chance that there could be more than one hearing. There’s also a chance in a Chapter 7 case, although it doesn’t occur very often. Most cases in a Chapter 7 setting are just one hearing.
In Chapter 13 Filing, An Automatic Stay Is Granted Before Being Discharged
Interviewer: And in a 13, you said can go on for three to five years. I mean, is the person subject to repeated times that they have to go to court and will they not have peace and be able to rest throughout the whole three to five years?
Paul: Absolutely not. In a Chapter 13 case, once they’re filed, as in the Chapter 7, there’s something called “an automatic stay,” which means the creditors cannot contact them and all action on the part of any creditors cease.
The difference, again, in a Chapter 7, is that once it’s filed, there’s one meeting and, at that point, most debtors walk out, and they feel like they’ve completed the process. In the 13, there’s also generally one meeting, but then they are going to be continuing to make payments. Sometimes, some issues might arise where debtor’s income might change, so they might seek to have the amount modified or sometimes their circumstances change where they no longer want to keep their home, which would require some additional hearings.
When Will Collection Activity By Creditors Cease?
Interviewer: I’m sure creditors hound many people. They get phone calls. They get letters. So, as soon as someone files a case, they don’t have to wait until gets resolved, but as soon as someone files it, the creditors, by law, have to stop bothering them?
Paul: Yes. That’s what’s called “the automatic stay.” There are many creditors, despite there being something called “The Fair Debt Collection Act,” oftentimes creditors don’t honor some of those requirements. Under The Fair Debt Collection Act, creditors are barred from continuing collection activity but often they continually contact and harass people.
By the filing of the bankruptcy petition, that automatically stops or stays any type of action on the part of creditors. So, that does all come to an end as soon as someone files. In fact, when clients retain our office, we tell them to direct all their creditors to us, so they don’t have to deal with anymore of the harassing calls and contact.
Interviewer: So literally, if a creditor calls and you filed, you should say to them, “Here’s my bankruptcy case number. Don’t ever call me again,” or “Here’s my attorney. Call him. Don’t ever call me again.”
Paul: Absolutely. Yes. In fact, we tell them, even before they’re filed, if they’ve already retained us, we tell them to direct creditors to us, so they don’t have to deal with the harassment.
In Bankruptcy Filing, What Is a Discharge?
Interviewer: So, the case goes along and, at the end of it, you get what’s called in Chapter 7, a “discharge?”
Paul: Yes. Correct. And also in a Chapter 13. In both cases, at the end of the process, you receive a discharge, which means that any debt–in a Chapter 7 setting, that was incurred prior to the date of filing is discharged or wiped out.
I think, importantly, too, even if there’s debts that weren’t listed on the petition, because you didn’t even necessarily know that they existed, such as a medical bill that you thought was paid but wasn’t paid, as long as that accrued prior to the filing, it’s still gotten disposed of in the bankruptcy.
Are There Limits on the Amount of Debt You Can Discharge?
Interviewer: Is there a limit on the amount of debt someone can have to file bankruptcy or the number of creditors?
Paul: Not in a Chapter 7. In a Chapter 13 setting, there is a limit on unsecured and secured debt, approximately $360,000 of unsecured debt in a Chapter 13, and a little over $1 million of secured debt in a 13. If someone exceeds those limits, but they’re not appropriate for a Chapter 7, their only other alternative would be to file an individual Chapter 11.