How to Prepare for Chapter 7 Bankruptcy

The best preparation anyone can make before filing a Chapter 7 bankruptcy protection is to make sure that they can meet (1) all of the necessary general bankruptcy filing requirements and (2) all of the requirements needed to file a Chapter 7 bankruptcy. 

Credit Counseling

Everyone filing for bankruptcy protection must have completed an individual or group mini credit counseling seminar with a U.S. Trustee approved, nonprofit credit counseling agency during the one hundred eighty day period preceding the date of the filing of a bankruptcy petition.  The credit counseling session costs about fifty dollars and is generally a ninety minute telephone or internet interchange with the credit counseling agency which is supposed to provide the debtor with counseling concerning his current financial predicament, isolate the reasons his debt got out of control and provide leadership in developing a plan to pay down the debt, learn to budget personal income and assets and dig back out of debt permanently.     

The Minimum Income and Means Test

Sole proprietors that are filing for Chapter seven bankruptcy protection as a result of debt arising from the operation of a business are eligible to file regardless of income levels.  Individuals filing for Chapter seven based on personal debt however must pass the minimum income test.  Eligibility is measured by the debtor’s current monthly income over the previous six months compared with the median income for a family of your size in your State.  If your income is less than or equal to the minimum income then you qualify to file for Chapter seven.  If your income is above the minimum income then you must go on to pass the “means test” in order to file under Chapter seven.  The purpose of the means test is to determine if the debtor currently has enough disposable income to pay his debts or at least a portion of his debts over a five year period of time.  If an individual can’t pass the means test then he would still be able to file for bankruptcy under Chapter thirteen.      

Preparing a Property List 

It would be very helpful to prepare a pre-filing list of all property that the debtor currently owns or holds title to in order to organize a review of which property might be exempt from the Chapter seven bankruptcy estate and which property would be seized and sold or liquidated by a trustee to pay creditors.  The property list will help to quickly determine if Chapter seven holds the best bankruptcy protections for the debtor.

Getting Legal Help

The best step any debtor in financial quicksand can take is to call a bankruptcy lawyer and get some experienced and professional help to get back on solid repayment ground.  Bankruptcy protection can be an answer for some debtors but each individual must make sure it is the best resolution for thier financial problems by consulting with a bankruptcy lawyer.