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The Basics of Chapter 7 Bankruptcy

If you are unable to pay your debts and you do not have a steady income, you may be eligible to file for Chapter 7 bankruptcy. Chapter 7 is a way for individuals to get rid of most of their debt and start a new financial life. However, it does not get rid of all debt, and it does have certain consequences.

Before filing for Chapter 7 bankruptcy, you should seek bankruptcy advice from a knowledgeable consumer bankruptcy attorney in your area.

Is Chapter 7 Right for You?

Chapter 7 is often referred to as a type of consumer bankruptcy. Consumers are individuals rather than businesses, and businesses are ineligible to file for Chapter 7.

Here are some signs that Chapter 7 bankruptcy may be right for you:

  • You can only pay the minimum payment on your loans
  • You do not foresee yourself getting out of debt within the next five years
  • You have no steady income or disposable income
  • You have not filed for Chapter 7 bankruptcy within the last few years

In addition, in 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This law makes it more difficult for consumers to file for Chapter 7 bankruptcy. Now, you must prove eligibility before you may file. If you have questions about whether you are eligible to file for Chapter 7, you should contact a bankruptcy lawyer in your state.

How to File for Chapter 7

The Chapter 7 process begins when you fill out a form known as the Statement of Financial Affairs. This form requires debtors to list detailed information about their finances, including their assets, debts, expenses, and income. You must also list the names and addresses of your creditors. A creditor is someone or something you owe money to.

Once you file this document with the proper bankruptcy court, the court will inform your creditors of your bankruptcy filing. Creditors will then be forced to stop any collection efforts on your debts unless they get permission from a judge.

Next, a court-appointed trustee will collect your non-exempt property. Non-exempt property includes such items as a second car, a second home, cash, and investments. These items are then sold, and the money from their sale goes to pay your creditors. This process is known as liquidation.

The 341 Meeting

As part of your Chapter 7 proceedings, you will have to show up to court for what is called the 341 meeting. At this meeting, you will answer questions from the trustee and your creditors while under oath.

The trustee and your creditors may ask questions about your debts and your assets. If your creditors have no objections to your bankruptcy filing within 60 days of this meeting, then your debts will be discharged. Discharged means that you will not be liable for them.

Exemption Schemes

There are some items you may be able to keep even though Chapter 7 bankruptcy requires you to liquidate your assets. Specifically, there are federal and state exemption schemes that list all the items you are allowed to keep under bankruptcy and insolvency laws.

Items that are sometimes exempt include:

The Consequences of Filing Chapter 7 Bankruptcy

Filing for Chapter 7 is not without its consequences. First, not all debts will be discharged after you file for Chapter 7. Specifically, the following debts will remain:

  • Most student loans
  • Fines owed to government agencies
  • Your most recent back taxes
  • Alimony and child support
  • Fraudulent debts

Also, filing for Chapter 7 leaves a mark on your credit history that lasts for 10 years. During this time, if you attempt to get a loan on a house or a car, your interest rates will be significantly higher. The same thing happens if you apply for a credit card.