Time and Fees

The entire Chapter 7 bankruptcy process takes about four to six month and usually requires only one trip to the courthouse.  It costs just $299.00 to file a Chapter 7 bankruptcy petition.

Who Can File

You are ineligible to file for Chapter 7 bankruptcy if you have already received a bankruptcy discharge in the past six to eight years (depending on which type of bankruptcy you file), or if based on your income, expenses, and debt burden you could realistically complete a Chapter 13 bankruptcy repayment plan.  Also, under the recent changes to bankruptcy law, you must complete a credit counseling class with an approved agency before filing for bankruptcy. 

Bankruptcy Forms

To file for Chapter 7 bankruptcy, you fill out a petition and a number of other forms and file them with the bankruptcy court in your area. Basically, the forms ask you to describe:

• your property
• your current income and expenses
• your debts
• your exemptions 
• property you've owned and money you've spent during the previous two years; and
• property you sold or gave away during the previous two years.

The Automatic Stay

Filing for Chapter 7 bankruptcy puts into effect an "Order for Relief" which is commonly known as the "Automatic Stay."  The automatic stay immediately stops almost all creditors from trying to collect what you owe them.  This means, at least temporarily, that creditors cannot legally garnish your wages, go after your home, car, or other property, or cut off your utilities or welfare benefits.  By filing for Chapter 7 bankruptcy, you are technically placing your property and debts into the hands of the bankruptcy court.  Accordingly, you cannot sell or give away any of your property when you file, or pay off the pre-filing debts, without the consent of the court.  However, with a few exceptions, you are free to do what you wish with the property you acquire and the income you ear after you file for bankruptcy.   

The Bankruptcy Trustee (Chapter 7)

The court exercises its control through a court-appointed person called a "bankruptcy trustee."  The trustee's primary duty is to see that your creditors are paid as much as possible on what you owe them.  The more assets the trustee recovers for creditors, the more the trustee is paid.  The trustee (or the trustee's staff) will examine your papers to make sure they are complete and to look for non-exempt property to sell for the benefit of creditors.  The trustee will also look at your financial transactions during the previous year to see if anything can be undone to free up assets to distribute to your creditors.  In most Chapter 7 bankruptcy cases, the trustee finds nothing of value to sell. 

The Creditors Meeting

Shortly after filing, the bankruptcy court will send you and all of your creditors a notice that a "creditors meeting" has been scheduled.  This meeting is run by the bankruptcy trustee.  After swearing you in, the trustee may ask you questions about your bankruptcy and the papers you filed.  In the vast majority of Chapter 7 bankruptcy cases, this will be the debtors only visit to the courthouse. 

Your Property

If the bankruptcy trustee determines that you have some non-exempt property, you may be required to either (a) surrender that property or (b) provide the trustee with its equivalent cash value.  However, if the property isn't worth very much or is difficult for the trustee to sell, the trustee may simply decided to "abandon" the property... which means that you will get to keep it, even though it is non-exempt. 

If, after the creditors meeting, the trustee determines that you have some nonexempt property, you may be required to either surrender that property or provide the trustee with its equivalent value in cash. If the property isn't worth very much or would be cumbersome for the trustee to sell, the trustee may "abandon" the property -- which means that you get to keep it, even though it is nonexempt.  In the end, most non-exempt property owned by Chapter 7 debtors is either exempt or essentially worthless for purposes of sale.  As a result, very few debtors actually end up having to surrender any property, unless it is collateral for a secured debt.

Secured Debts

If property has been pledged as collateral for a loan, the loan is called "secured debt."  The most common examples of collateral or homes and automobiles.  If you are behind on your payments, these creditors can ask to have the automatic stay lifted in order to repossess or foreclose on property.  However, if you are current on your payments, you can keep the property and keep making payments as before... unless you have enough equity in the property to justify its sale by the trustee.  It is important to note that if a creditor has recorded a lien against you property because of a debt you have not paid... such a when a creditor has obtained a court judgment against you... that debt is also secured.  However, you may be able  to wipe out the lien in Chapter 7 bankruptcy.    

The Chapter 7 Bankruptcy Discharge

At the end of the Chapter 7 bankruptcy process, all of your debts are wiped out (or discharged) by the court except"

·         debts that automatically survive the bankruptcy process, such as child support, most tax debts, and most student loans; and