Chapter 7 Bankruptcy For Individuals
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There are two options for filing bankruptcy as a consumer, chapter 7 and chapter 13 bankruptcy. Chapter 7 is often referred to as liquidation as all of your unexempted property is sold in order to pay off your creditors. Exempt property is that property that the government allows you to keep in order to continue living a normal life, like a car, clothing, furniture, etc. Each state has their own bankruptcy exemptions, as well as Federal exemptions that can be used in some states.
In order to qualify to file a chapter 7 bankruptcy petition, you must be an individual, you must complete a credit counseling course from an approved agency within the 180 days before filing for bankruptcy relief, and pass the means test which is filed with your petition.
In a ch 7 petition, you will have to file statements that list your creditors, property, income and expenses. You will also have to provide copies of tax returns filed the last two years, pay stubs from the last 6 months, and your certificate from completing the credit counseling course. Bankruptcy filers who are married must provide the spouses information even if they are not filing bankruptcy together so the court can determine the households ability to pay the debts.
When completing your petition, you will have the option to continue paying and keeping your property if you are able to, such as your home or car, by making a reaffirmation agreement with the creditor. By reaffirming the debt you are acknowledging that you intend to make payments. If the trustee approves your reaffirmation agreement, the creditor may have rights to collect payments and reposses the property even after your bankruptcy discharge.
When you file your ch 7 bankruptcy papers you will have to pay a filing fee of $299. This fee can be paid in installments, up to 4 no later than 120 days after filing, and in certain cases can be waived altogether. Once filed, the bankruptcy stay is in effect, and your creditors cannot try to collect on the debts or continue lawsuits, or wage garnishments. Each of your creditors will be notifed that you have filed bankruptcy and given a chance to respond. A meeting of the creditors, a 341 meeting, will be called within 20-40 days of filing the petition. During this meeting, the bankruptcy trustee and your creditors may ask you questions under oath about your debts, assets, income, expenses and your ability to pay. Within 10 days of the meeting the trustee will rule on whether the case should be presumed as abusive under the means test. If your case is presumed to be abusive you will be given a chance to refile under chapter 13.
The bankruptcy trustee is then responsible for liquidating your assets that are not exempt, meaning they are not protected by filing bankruptcy, and giving the proceeds from the sales to your unsecured creditors. Once assets are liquidated, if there are any, then the trustee will grant the debtor a bankruptcy discharge which absolves the debtor, you, from owing what is left to your creditors, basically wiping out your debt. Creditors are no longer allowed to come after you for these debts.
