Is It True A Chapter 7 Bankruptcy Doesn't End With The Discharge Of Debts?

8 February 2016
 Categories: , Articles

People who file for chapter 7 bankruptcy think their cases end when they receive the discharge papers relieving them of the obligation to pay the debts listed in their petitions. This isn't the case, unfortunately. Your bankruptcy doesn't officially end until the court issues a final decree in the case, which doesn't always coincide with getting a discharge. Here's what you need to know about this matter and how it can affect the outcome of your case.

It Can Take Years to Get a Final Decree

The final decree is basically a confirmation by the court that all of the tasks associated with administering a bankruptcy case have been completed. This includes:

  • Recovery of non-exempt assets
  • Distribution of payments to creditors
  • Resolution of any objections or violations by the petitioner or creditors
  • Filing of all requisite paperwork by the bankruptcy trustee

The procession of a bankruptcy case is typically regulated by deadlines. For instance, the 341 Meeting of Creditors must take place no sooner than 21 days and no later than 40 days after the bankruptcy petition was filed. However, there is one aspect of the bankruptcy proceeding that can take months, if not years, to resolve, which significantly impacts when the final decree is issued, and that is the handling of assets.

Debtors who have no assets, whose assets are all exempt, or who the trustee has chosen not to pursue acquisition of non-exempt assets are relegated into the no-asset category. Once all the checks sent to the creditors have cleared and other issues resolved, the court will typically issue a final decree shortly after sending the debtor his or her discharge papers.

On the other hand, debtors who have assets that must be retrieved and sold are placed in the asset category, and the final decree in their cases will only be issued once all the money, property, and other items have been dealt with. This can take anywhere from a few months to several years depending on the complexity of the petitioner's case, the amount of assets the person has, and the number of claims to those assets submitted by creditors.

For instance, the trustee takes possession of a vacation house owned by a debtor. The trustee must wait until the house sells to recoup the equity in the home, so he or she can distribute that cash to creditors. Depending on the area, it can take up to a year to unload the home. While the court may send the debtor a discharge 95 days after bankruptcy was filed, the final decree may not come until a year or more later.

Continuing Obligations

Until the final decree is issued in your bankruptcy, you will be expected to continue cooperating with the court as it administers your case. You may be called upon to

  • Testify in court for a pending or ongoing lawsuit
  • Turn over non-exempt assets as you receive them (e.g. payments from a personal injury lawsuit)
  • Submit additional documents or fill out paperwork
  • Answer questions during a 2004 disposition

Failure to cooperate with the trustee or the court could result in sanctions against you or your bankruptcy case being dismissed altogether. Therefore, it's critical that your trustee has your current contact information so you can avoid missing important notices about your case.

For most people, filing for bankruptcy is a straightforward affair, and their cases are closed shortly after they get their discharge papers. For a small percentage, however, the complexity of their cases means it may take awhile before their petitions are completely resolved. It's a good idea to work with a bankruptcy attorney who can help you get through the process with as little hassle as possible. You can click this link to check out a bankruptcy law firm right now.