Basic Overview of The Chapter 7 Bankruptcy Process

A basic overview of the chapter 7 bankruptcy process includes knowing that people eliminate their debts without repaying their creditors. However, this is considered a liquidation or reorganization bankruptcy. Thus, under chapter 7 any proceeds from the sale of people’s nonexempt property are distributed to creditors, according to the U.S. Bankruptcy code, in lieu of payment.

Obtain Credit Counseling

According to the U.S. Bankruptcy Court, people must complete credit counseling within 180 days of filing for chapter 7. The credit counseling agency must be on the bankruptcy court’s approved list of agencies. Even if people know they have to file for bankruptcy, they have to discuss whether repaying creditors on their own would be better than bankruptcy. Once the counseling is completed people will receive a certificate that must be included to file bankruptcy. There is a fee people have to pay to the credit counseling agencies.

File Bankruptcy Forms

The U.S. Bankruptcy Courts require people file petitions and a series of bankruptcy forms with their local bankruptcy court. The paperwork includes a list of assets and debts, current income and list of creditors. Along with the bankruptcy petitions and forms, people must pay the filing and administrative fees and trustee surcharge. The payments should be paid to the clerk of courts at the time of filing. However, the bankruptcy court does allow people to pay in four installments within 180 days of filing the petition.

Receive an Automatic Stay

Once the chapter 7 cases are filed, petitioners receive an automatic stay. This means that any attempts at debt collection such as wage garnishments or lawsuits are stopped.  

Trustees Hold Meeting 20 to 40 Day after Petition Is Filed

People must appear at meeting of creditors where trustees placed them under oath and asked questions. These questions are about people’s credit history. The trustees may request people turn over property that can be sold to repay debt. However, if the items are too cumbersome to sell, then people may keep them.

Bankruptcy Discharge

People are relieved of most debts they’ve listed. However, certain types of debts are not eliminated such as student loans, child support and tax debts.

Consult an Attorney

There are alternatives to chapter 7 bankruptcy if people need to save their property from foreclosure or aren’t comfortable giving up their nonexempt property. So, it’s important to contact an attorney to explore all the alternatives such as filing chapter 13 or 11.