The Requirements To File A Chapter 7 Bankruptcy

Posted by William Kain on August 11, 2017 at 7:30 PM
William Kain

what is chapter 7 bankruptcy.jpgLast week I wrote about the Requirements to File a Chapter 7 Bankruptcy Case. I wrote who (or what) can file chapter 7 case, the means testing requirement involved in chapter 7 cases, and the requirement that a chapter 7 debtor have a credit counseling briefing prior to filing a chapter 7 case. This week, I will look at the question that, while it does not come up often, can be quite important in the few cases where it is an issue: the venue of the bankruptcy case. Then I will write about what a chapter 7 debtor has to do to obtain a discharge.

Venue in Chapter 7 Cases

Venue is a legal term with a simple definition. Venue is the place where a legal action is allowed to take place. In bankruptcy cases, that means that lawyers filing bankruptcy cases must file the case in a district (state or federal territory or commonwealth) allowed by the venue provisions found in Title 28, section 1408. And in almost every Chapter 7 Bankruptcy case, the appropriate venue for the case is simple: the state in which the debtor resides is the appropriate place to file the case.

However, the residence of the debtor does not have to control the venue of the bankruptcy case. Section 1408 tells us that venue is appropriate where a debtor is domiciled (the debtor’s permanent home where the debtor intends to reside), resides (living presently), has his principal place of business in the United States, or principal asset in the United States. “Principal” has been defined by the court to mean business headquarters in determining venue, and “principal” has been defined to mean most valuable in determining venue based on asset location. And remember that the place of business definition does not necessarily refer to a business filing a chapter 7 bankruptcy. It can simply involve an individual filing a personal bankruptcy who owns her own business. The debtor in this situation could reside, say, in Superior, Wisconsin, but have her business located in Duluth, Minnesota. In this example, the business owner could file a bankruptcy case in either Wisconsin (where she resides) or Minnesota (where she has her principal place of business).

I once represented a client who lived south of Los Angeles, California, but still owned a town home in Apple Valley, Minnesota.   Because of exemption laws, she would be able to retain all of the property she owned if she filed in Minnesota, the state in which her principal asset was located; if she filed in California, the state where she lived, she would not be able to retain all of the property she owned. So, even though she lived in Southern California, we filed her bankruptcy case with the Bankruptcy Court in St. Paul, Minnesota. Venue was appropriate since the principal asset that she owned was located in Minnesota, even if she was not.

As I mentioned earlier, the question of venue based on residence, business location or asset location rarely comes up. There is another venue requirement that comes up more often, though. Venue of a case is proper in the district in which the debtor has been domiciled, resided, had her principal place of business or had her principal asset located for the 180-day period immediately before filing a chapter 7 bankruptcy case. In the event a person hasn’t been in one place for the six months’s prior to filing, the law says that venue is proper in the state in which the debtor has been located for the greater portion of the last 180 days (so 91 days or more). So a person who has recently arrived in Minnesota cannot automatically file a chapter 7 case immediately upon arrival; that person will either have to file the case in the district where he lived for the greater portion of the last six months or wait 91 days after arriving in Minnesota before filing a bankruptcy case here.

So those are the requirements for filing a Chapter 7 case - the person or business in question can be a debtor under the bankruptcy code, the debtor’s income meets the means test requirements to file a case, the debtor has received a credit counseling briefing and the state in which the case is filed is appropriate as far as venue. Now let’s take a look at what the debtor needs to do to receive a bankruptcy discharge.

A “Complete” Filing

The US Bankruptcy Code, and the rules of bankruptcy court set out with specificity the documents required to file a bankruptcy case. If a case is filed without all of the required documents, the clerk of bankruptcy court will send a notice to the attorney who filed the case that the filing is incomplete and the missing petition, schedules, statements or certificates must be filed within a several-day time period or the case will be dismissed. So the first step in receiving a discharge is to make sure that all necessary papers be filed correctly.

The 341 Meeting

The only formal legal proceeding that almost every Chapter 7 debtor is required to attend is a meeting with a chapter 7 trustee. This meeting is often called the first meeting of creditors or a 341 meeting (after the code section that requires it).   It is at this meeting that the case trustee assigned to a debtor’s case asks the debtor questions to determine if there has been a full and complete disclosure of the debtor’s financial situation. A chapter 7 debtor is required by the bankruptcy code to cooperate with the case trustee. Failure to attend the 341 meeting is grounds to dismiss a debtor’s chapter 7 bankruptcy case.

A Chapter 7 debtor is not required to answer the trustee’s questions, and a debtor most certainly does not waive his privilege against self-incrimination by simply filing a Chapter 7 Bankruptcy case. However, failure to answer questions, or the invocation of the debtor’s constitutionally-guaranteed privilege against self-incrimination is a basis for a chapter 7 bankruptcy case to be dismissed for failure to cooperate with the trustee.

That’s enough for this week - next week we’ll continue to look at what’s required for a Chapter 7 discharge and what isn’t an obstacle in filing a Chapter 7 case or receiving a bankruptcy discharge.

Topics: Bankruptcy, Chapter 7