Chapter 7 Bankruptcy - What to Expect When You File Chapter 7

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Posted on November 18, 2008
Filed Under Debt Consolidation, Avoid Bankruptcy, Business Bankruptcy, Chapert 11, Chapter 13, Blog Carnivals |

When the word “bankruptcy” comes to mind, people usually think of “Chapter 7″ personal bankruptcy because this is the most common one. Under this type of bankruptcy, most of a person’s debts are cancelled. However, the person that is filing for bankruptcy may have to give up certain items of property.

How to File for Chapter 7 Bankruptcy Relief

There were certain amendments to the bankruptcy laws that took effect in October of 2005, which consists of a two-part test. This will determine whether a person even qualifies for Chapter 7 bankruptcy.

1: Determines Ability to Repay - The income of the debtor is examined under a certain formula, which exempts specific necessary expenses, such as rent and food, to see if the debtor can repay 25% of the “non-priority unsecured debt.

2. Income compared to State Median Income - The debtor’s salary is compared to median incomes around the state.

If the debtor happens to make more than the state median income, and found that the person can repay 25% of the “non-priority unsecured debt”, the debtor will NOT be eligible for Chapter 7 Bankruptcy and will have to look about filing Chapter 13 Bankruptcy.

The debtor must also have a meeting with a credit counselor at some time 6 months before applying for bankruptcy. He or she must also attend money management classes and must pay for these out of their own pocket.

The Automatic Stay

One the debtor has filed for bankruptcy, the estate of the debtor is protected by “automatic stay”. This means that debtors cannot try to collect debts without first having permission of the bankruptcy court. Therefore, the debtor does not have to worry about his or her house going into foreclosure, repossession of his car, eviction for an apartment, garnishment of wages or bank accounts, cutting off his electricity, or any other measures that creditors may try to take in order to recover any monies owed.

Although the stay may prevent the debtor from being evicted from his apartment, any new obligations that the debtor may incur would be payable to his creditors. For example, if a debtor continues to rent an apartment, if he does not pay any rent accrued AFTER the date that bankruptcy was filed for, then you may be liable to be evicted from the apartment.

The Chapter 7 Bankruptcy Process

A trustee is usually appointed by the court in a Chapter 7 bankruptcy case. The main duty of the trustee is to make sure that your creditors are paid as much as possible of the amount owed to them. The more of your assets the trustee is able to obtain for your creditors, the more the trustee gets paid.

There will be a short hearing called a “creditors’ meeting” which the debtor has to attend but the creditors usually do not show up at the hearing. The trustee asks the debtor questions concerning his assets and obligations. This hearing usually takes about five minutes.

After the trustee has exhausted the debtor’s funds obtained by liquidating his or her non-exempt property, most of the remaining debts that are unsecured are then discharged.

All in all, the Chapter 7 bankruptcy takes from four to six months to finish.

Read on to learn whether chapter 7 bankruptcy is right for you, plus learn how to choose a good bankruptcy lawyer.

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