Chapter 7 is called a “liquidation” bankruptcy because, in exchange for wiping out most of your general unsecured debt (such as credit cards, medical, and repossession deficiencies) without making any payment to creditors, you are subject to surrendering all belongings that are property of the bankruptcy estate and not exempt. The term “exempt” means property that you have a right to retain under law. If there are any estate assets that are not exempt, the person appointed to serve as the “trustee” in your case may require you to turn them over, taking their value into consideration. The trustee turns non-cash assets into cash by selling them at auction, etc. The proceeds are used to pay the trustee’s fees and expenses and then distributed to your creditors on a pro rata basis. The good news is that there is usually little or no non-exempt property for the trustee to liquidate, allowing you to receive a discharge a few months after filing the bankruptcy petition without having to give up any of your assets. These are known as “no-asset” cases.

A discharge means that you are forever released from dischargeable debt, and it is illegal for creditors to attempt to collect on it. But some types of debts are not dischargeable in Chapter 7; for example, child support and spousal maintenance, most student loans, certain taxes, fines and penalties owed to a governmental unit, and certain obligations that arise out of a divorce. Additionally, it is possible for creditors to object to your discharging certain debt when there are grounds under the Bankruptcy Code; for example, allegations of fraud or misrepresentation. Be aware that if you have secured debt, such as a mortgage or auto loan, and you want to keep the house or car that secures the debt, then you must continue paying on the debt.

You may be questioning whether to hire an attorney to represent you in a Chapter 7 case or handle it yourself. Like all legal processes, bankruptcy can be trickier than you think, and it simply isn’t a “one size fits all”. Bankruptcy laws are complex and there are many potential pitfalls that a layperson wouldn’t anticipate.

One of the more complicated aspects of Chapter 7 is the “means test”. With the exception of a couple means test exclusions, to qualify for Chapter 7, you must pass a test that looks back in time at your income over the preceding six months. Aside from social security and disabled veterans benefits, all income you received is included, even bonuses or overtime that you are no longer receiving. If the total income exceeds the median income level for a household of your size in Arizona (based on census figures), then you must do a complicated calculation known as the “long form means test” to determine your eligibility for Chapter 7. The long form means test has line item deductions that require you to know more than what is just on the form. One example of this is the deduction for “taxes”—it is your actual tax liability and not necessarily the amount of taxes withheld from your paychecks. Each deduction can mean the difference between passing or not passing the means test, and a competent attorney will maximize all possible deductions to help you qualify for Chapter 7.

A good attorney will also do something called “exemption planning” to allow you to keep as many of your assets as possible through bankruptcy. First, it’s important to select the correct set of exemptions for your situation, and that depends on where you’ve been living for the past 24 to 30 months. Once I know which exemption laws apply, I can analyze whether all your assets are protected by exemptions. You may be surprised by the things that count as assets. For example, a tax refund and a personal injury claim (even if you have not yet made a claim or filed a lawsuit) are assets that belong to your bankruptcy estate, and a trustee can take them away from you if there is no exemption. Should the Arizona exemptions apply to your case, you are likely to lose a tax refund and personal injury claim unless you do the proper planning. The timing of the bankruptcy filing is crucial in these kinds of situations—many people who represent themselves in a bankruptcy don’t realize that had they hired an attorney to guide them through the process, they would have come out much further ahead, even after paying attorney fees.

At our first meeting, clients frequently ask “how long does it take?” Here are the basic steps:

1. We have our first meeting, either in person or by phone or video, to talk about your situation. I’ll analyze the issues and explain your options. If a Chapter 7 bankruptcy is a good option for you, and you decide to proceed with filing, I gather the information and documents needed from you to prepare the bankruptcy petition, schedules, and statements. If the bankruptcy filing will be delayed—for example to avoid losing a tax refund or personal injury claim, sell a non-exempt asset, wait out a preference payment or fraudulent transfer, qualify for better exemptions, etc.—I’ll wait to gather the documents until we’re closer to the filing date because they will otherwise be outdated. But if the timing is right, I will immediately take the information and documents and prepare your bankruptcy petition, schedules, and statements. Then we will review the bankruptcy documents together and sign them. If you have everything with you at the first appointment, I can even file your case that same day!

2. You must complete a credit counseling course from an approved credit counseling agency prior to filing bankruptcy. It’s roughly an hour long course that can be taken online and costs approximately $15. You will receive a certificate of completion that must be filed with the court when the case is filed.

3. Once your case is filed, there is a bankruptcy trustee appointed and a date set for your 341 Meeting of Creditors, which is held between 21 and 40 days after the petition is filed. The “341 meeting” (named after the applicable Bankruptcy Code section) is an in-person meeting with the trustee assigned to your case, where the trustee asks you questions under oath. Your creditors receive notice of the meeting, but normally do not show up, so it usually goes by very quickly. The most important thing for you to remember is to bring a government-issued photo I.D. (driver’s license, passport, etc.) and proof of social security number (social security card or W-2 form); otherwise, the meeting will be continued to a later date.

4. Shortly after the case is filed, and prior to the 341 meeting, you will receive a questionnaire from your trustee in the mail. It is very important to make me aware of any address change so that the questionnaire is mailed to the correct address. With most trustees, you will return the completed questionnaires to them directly, but there are some trustees who require me to upload them on your behalf. The questionnaire must be returned by the trustee’s deadline, and well in advance of the 341 meeting so the trustee has an opportunity to review it beforehand. I’ll be available to help you with it as needed. You are also required to provide a copy of your federal income tax return, or transcript, for the last year a return was actually filed. If the trustee does not timely receive the questionnaire, he or she may continue the 341 meeting to a later date, and you will have to appear again. If the trustee does not timely receive the questionnaire, he or she may continue the 341 meeting to a later date, and you will have to appear again.

5. There is a second course, which you must take after the bankruptcy filing in order to receive a discharge of your debt. It is called the debtor education course, can be taken through the same agency as the pre-filing course, and costs approximately $10. The post-filing course is about twice as long as the pre-filing course.

6. The Bankruptcy Court can enter a discharge order once 60 days have passed since the 341 meeting; however, it may take a little longer, with the discharge usually going through 60-75 days thereafter. Any creditor who wishes to object to your discharging a certain debt must file a written objection with the court within 60 days after the 341 meeting, but that is a rare occurrence.

7. The trustee will close the case after he or she has liquidated any non-exempt assets and distributed the proceeds to creditors who filed allowed proofs of claim. There is no set deadline for a trustee to close a case, and on rare occasions a case can remain open for years. If it’s a “no-asset” case, the trustee typically closes the case shortly after the discharge is entered.