When faced with overwhelming debt, you may consider filing for bankruptcy as a way to reset your financial situation. One of the most common forms of bankruptcy for individuals and married couples in the United States is Chapter 7.
Understanding the Chapter 7 bankruptcy process can help you make an informed decision about your financial future.
Understanding Chapter 7 bankruptcy
Chapter 7, also known as “liquidation bankruptcy”, offers the opportunity to erase most of your unsecured debts. Filers have to agree to liquidate, or sell, non-exempt property and use the proceeds to pay creditors.
To determine your eligibility, you will need to pass a “means test” that examines your income, expenses and family size to see if you can pay back your debts. If your income is less than the median income for a household of your size in your state, you may qualify for Chapter 7 bankruptcy.
Filing the petition
File a petition with the bankruptcy court in your district. This petition includes detailed information about your debts, income, assets and a list of all your property. You must be truthful and accurate in this documentation.
Attending credit counseling and debtor education course
You will need to complete a credit counseling course before filing and a debtor education course after filing. These courses can help you understand your financial situation and educate you on managing your finances effectively in the future.
Meeting with creditors
About a month after filing, a court-appointed trustee will call a “meeting of creditors.” Here, creditors may ask you questions about your financial situation and the information in your bankruptcy papers.
Usually, within approximately 100 days of filing your petition, you will receive a notice from the court about the discharge of your eligible debts, meaning you are no longer legally required to pay them. However, keep in mind that not all debts are dischargeable. You will still have to pay debts such as alimony, child support, certain tax debts and student loans, among others.
While Chapter 7 bankruptcy can provide a fresh financial start, it also has significant consequences, including a severe impact on your credit score. Always consider all your options and their long-term effects before deciding to file for bankruptcy.