Before filing for Chapter 7, consider some important advantages and disadvantages.
The advantages include:
The disadvantages include:
Sometimes filing for Chapter 7 may not be the best choice. Consider the following:
To qualify for Chapter 7, the filer must pass the means test. If the filer's average monthly income for the six months preceding filing for bankruptcy is less than or equal to the median income in their state, then the debtor can file for Chapter 7. If the filer's income is too high, they must pass the second part of the test, which assesses whether the debtor has enough disposable income to pay some creditors.
When a person files for Chapter 7 bankruptcy, the bankruptcy court obtains jurisdiction over almost all property the debtor owns and possesses. Consequently, in exchange for discharging some debts, a bankruptcy court may sell the debtor's nonexempt property to pay creditors. In most states, nonexempt property typically includes cameras, stamp collections, family heirlooms, cash, bank accounts, and stocks.
Secured debts, debts secured by collateral, give a creditor the right to take the property if the debtor does not pay the debt. In bankruptcy, the debtor can choose to do any of the following: reaffirm, redeem, or surrender the property. If the debtor chooses reaffirm the debt, the debtor can keep the property by entering into a new agreement with the creditor to repay the debt. A debtor may also keep the property through redemption, or paying the creditor the current value of the property. Â
A debtor must attend credit counseling with an approved agency at least 180 days before filing for bankruptcy. A counseling agency will help the debtor determine whether Chapter 7 is the best option or whether other alternatives, such as entering into a repayment plan with the creditor, will resolve the debtor's financial problems.
Filing for Chapter 7 requires the debtor to provide information about income, debts, and property. The debtor will also need to submit a certificate to provide proof of fulfilling the counseling requirement, a list of creditors, their most recent federal tax return, and wage stubs. Once the debtor has completed the appropriate paperwork and filed it with the bankruptcy court, the bankruptcy process begins. In an emergency, such as to stop a home in foreclosure from being sold, a debtor may file for bankruptcy without filing all of the necessary forms. However, the debtor must file the remaining paperwork within 15 days.
After the debtor files for bankruptcy, the bankruptcy trustee will schedule a meeting with creditors. Creditors and the trustee may ask the debtor questions about bankruptcy documents and about other relevant information. In most cases, this is the only time the debtor will appear in bankruptcy court.
Before receiving a bankruptcy discharge, the debtor must attend a course about financial management with an agency approved by the U.S. Trustee's office. The debtor will receive a certificate to file with the bankruptcy court upon completion. This requirement is necessary for the completion of bankruptcy.
Typically, about two months after the meeting with creditors, the debtor will receive a Notice of Discharge from the bankruptcy court. The debtor is no longer responsible for paying the debts discharged in bankruptcy.
Creditors and other parties involved in a Chapter 7 bankruptcy are represented by lawyers and you should be too. Legal counsel can alert you to opportunities to protect your property and can negotiate for the best terms possible. Get in touch with an experienced bankruptcy attorney who can answer any bankruptcy-related questions and help you get through your bankruptcy proceedings.
