Filing a Chapter 7 Bankruptcy: Basic Steps

When filing for Chapter 7 bankruptcy, your case should move forward predictably. Here's a summary of what's involved in a typical Chapter 7 bankruptcy. Before filing, you'll determine whether you qualify and whether you'll be able to keep all of your property. After you complete and file your forms, you'll present documents to the bankruptcy trustee appointed to your case, attend the meeting of creditors, and complete your second debtor education course. You'll receive the bankruptcy discharge wiping out your debt after three to four months.

If you are thinking about filing for Chapter 7 bankruptcy, here's an overview of what you'll need to do.

1. Analyze your debt

Some debts, such as child support obligations, most student loan balances, and recent tax debt, aren’t dischargeable (wiped out) in Chapter 7 bankruptcy. And if you pledged collateral for a debt (such as a house or car), the creditor can take the property if you’re not current when you file and if you don’t remain current after your case. (Find out more in When Chapter 7 Bankruptcy Isn't the Right Choice.)

2. Determine your property exemptions

Every state has exemption laws, which dictate what types of property (or, in some cases, how much equity in a particular type of property) you are entitled to keep if you file for Chapter 7 bankruptcy. Most people can retain household furnishings, retirement accounts, a modest car, and some equity in a home. You’ll want to be sure that you can protect everything you want to keep before filing. (To learn more, see Bankruptcy Exemptions.)

3. Make sure you are eligible

Most people must take and pass the means test before qualifying for a discharge in Chapter 7 bankruptcy (excluded individuals include those with primarily business debt and some military personnel). If your average gross income during the six months before you file is more than the median income for a family of your size in your state, you qualify. If not, you’ll subtract allowed expenses from your income to determine whether you’ll be allowed to use Chapter 7 bankruptcy. (Learn more about eligibility for Chapter 7 bankruptcy.)

4. Redeem or reaffirm secured debts

If you pledged property as collateral for a loan, you'll need to continue to pay the creditor if you want to keep the property. When you file for bankruptcy, you'll be asked to decide whether you want to "redeem" the property (pay the creditor the current replacement value of the property in a lump sum), "reaffirm" the debt (agree to continue paying per the contract with the creditor—usually under the same terms), or "surrender" the property (let the creditor take it). Depending on where you live, there might be other options as well (some lenders let debtors keep the property as long as they remain current on the loan). (Learn more about your options for secured debts in Chapter 7 bankruptcy.)

5. Fill out the bankruptcy forms

You'll complete a few dozen pages of forms, in which you tell the court about all of your property, debts, income, expenses, and prior transactions. You'll list the names of all your creditors, property, and income, list your property exemptions, and decide what you want to do about each of your secured debts. Finally, you’ll disclose property transactions that occurred up to ten years before your case. (Here's a list of the forms you'll need in Chapter 7 bankruptcy, and where to find them.)

6. Take a credit counseling course

Individuals who file for bankruptcy must complete a course before filing for bankruptcy, or, in unusual cases, shortly after that. (Find out more in The Pre-Bankruptcy Credit Counseling Requirement.)

7. File the forms

Filing your petition (the main bankruptcy form, schedules, and other forms) officially starts your case. Most people file all the forms at once, but if you're pressed for time, you can opt for an emergency filing by completing a few required forms. You must file the remaining forms within 14 days. (To learn more, see Filing for Bankruptcy.)

8. Pay the filing fee or request a fee waiver

You’ll pay a filing fee when you file your forms. If you can’t pay it all at once, you can ask the court to split it into four payments. If you can’t pay it at all, you can apply for a fee waiver by filling out an application that you’ll file along with your bankruptcy petition. A judge will review it and, in most cases, issue the fee waiver if it appears that you meet all necessary qualifications. (Your household income must be 150% of the federal poverty guidelines or less, and you can’t have sufficient income to pay in installment payments.) (See Bankruptcy Filing Fees and Costs.)

9. Submit documents to the bankruptcy trustee

You’ll need to turn over documents that prove the accuracy of the information provided in your bankruptcy forms. You can expect to forward bank statements, paycheck stubs, profit and loss statements, tax returns and other documents the trustee requires. (Find out what to expect in Gathering Your Documents for Bankruptcy.)

10. Go to a meeting

In most cases, you'll need to go to court only once for a short meeting with the trustee (and perhaps a creditor or two, although it’s unusual for creditors to appear). The bankruptcy trustee appointed to your case will check your identification, and ask standard questions required of all debtors, as well as specific questions about the information in your forms. (To learn more see, The Meeting of Creditors in Chapter 7 Bankruptcy.)

11. File objections or motions if needed

If you dispute a creditor's claim against you or you want to eliminate certain liens, you'll need to address these matters before your bankruptcy case is closed (if you forget to handle a lien, most courts will allow you to reopen the case at a later date).

12. Wind up your secured debts

When you filed your bankruptcy forms, you’ll complete a form in which you stated how you intend to handle your secured debts. Before your case is closed, you'll need to act on these matters. For instance, if you indicated that you'd return a car, you’ll want to be sure to make it available to the lender. (For more information, see What Is a Secured Debt?)

13. Complete a debtor education course

After you file your paperwork, you'll need to complete the second course, called a debtor education course, before you'll receive a discharge (the order that wipes out your debt). If you fail to submit your certificate on time, the court will close your matter without a discharge. Fixing this problem can be expensive because you’ll likely have to file a motion and another filing fee to reopen the case. (Learn more in What Is Credit and Debt Counseling in Bankruptcy?)

14. Get your discharge

Congratulations! This is what it's all about. At the end of a successful bankruptcy, the court will issue an order discharging your qualifying debts. Once discharged, you no longer have a legal obligation to pay it, and the creditor has no right to collect it.

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