Millions of individuals decide to file bankruptcy each year in order to handle debt issues for which there is no other practical resolution. Most who decide on bankruptcy choose Chapter 7 to gain a true fresh start, free of debt, by wiping out all of their unsecured debt.
Chapter 7 is designed to eliminate debt entirely. It is important to realize that under Chapter 7, you may lose property, including your home and potentially your car. Your assets are liquidated under this form of bankruptcy and the money generated is used to pay off creditors and settle debts. Those who have no assets can see their debts discharged under a Chapter 7, which eliminates liability for the debt.
Most who choose Chapter 7 are faced with substantial medical bills, credit card bills, personal loans and other forms of unsecured debt. Most also do not have significant assets, or if they do, do not have any other means of recovering from their current financial crisis.
Qualification for Chapter 7
In order to qualify for Chapter 7, you must pass the means test, which is a rigorous accounting of all income, expenses, assets and debts. The means test must show you have no reasonable ability to repay your debts under your current economic situation.
In some cases, individuals who are found ineligible for Chapter 7 may still qualify for a Chapter 13 bankruptcy. Under Chapter 13, your debts are reorganized and a repayment plan is established through the court system to allow you to pay off creditors in a longer period of time - typically three to five years. A Chapter 13 can exempt certain personal property from being taken, allowing you to keep your house and your car as well.
Filing Chapter 7 Bankruptcy
It is possible to file bankruptcy on your own, without the help of a bankruptcy lawyer. However, it is difficult to do so successfully. It is advisable to seek legal help as the filing process is complex and the outcome crucial to your financial future.
Contacting a bankruptcy lawyer is the first step in the filing process. The attorney can help determine your eligibility for Chapter 7 and educate you on filing procedures, fees and other details. Most bankruptcy lawyers offer a free consultation.
If you decide to proceed with filing Chapter 7 after the consultation, you will be expected to complete the documentation necessary for the means test and to pay the federal filing fees for Chapter 7, which currently amount to $306.00. Most attorneys will also require you to pay at least half of their own legal fees for handling your case at this time as well.
Before filing for Chapter 7, be sure to go through our Chapter 7 Bankruptcy Checklist to make sure you are prepared for the undertaking.
Once you have turned in the initial forms and paid all of the required fees, your bankruptcy lawyer will file the paperwork to open your Chapter 7 case with the federal bankruptcy court in your area.
What Happens After Filing
After the case is opened, you will be required to complete a credit counseling course. That class must be finished before your case is reviewed by the bankruptcy judge. Failure to complete the class will result in your case being dismissed. Your bankruptcy attorney can help you find a qualified course offered by an approved provider.
The bankruptcy court reviews your case and the judge determines if you qualify for Chapter 7. If you meet eligibility requirements, any existing assets may be seized and liquidated to pay off creditors. Your debts will be eliminated through payoff, settlement or discharge, dependent upon your assets.
Most debtors who file Chapter 7 never set foot in a court room. For the majority of individuals, the only meeting they’re required to attend is the meeting of creditors, which is typically held with the bankruptcy trustee.
Following the determination of your case, you will be required to complete another course, this time in debtor education, which is intended to help you manage your finances better in the future. This class must also be finished within a prescribed timeframe and with an approved provider. Failure to complete this class can also see your Chapter 7 dismissed.
Most Chapter 7 cases are closed fairly quickly. The average case is completed in as little as six months, through the exact time of your own case will depend on several factors, including your responsiveness to completing and submitting required documentation and classes, and the availability of the bankruptcy judge and trustee in your area.
Read more about what happens after filing for bankruptcy here.
Cost of Filing Chapter 7
There are several fees associated with filing a Chapter 7 bankruptcy. The federal filing fees of $306.00 are fixed, though under some circumstances, debtors can apply for and receive a fee waiver. A bankruptcy attorney can assist you with this process, if you qualify.
Attorney fees for handling a bankruptcy case can vary and the schedule for paying fees to the lawyer can as well. Additional costs incurred in the filing process will include the fees for required classes in credit counseling and debtor education, though again, there are low cost and no cost options available and your bankruptcy attorney can educate you on these options.