Chapter 7 bankruptcy is the most popular form of bankruptcy. It is quick and doesn’t require filers to repay any debts. This article will cover the basics of Chapter 7 bankruptcy, such as who can file, what papers are required, how it works, and what happens with your property and other obligations.
Chapter 7 discharges are not available to all. You will be eligible if your gross income is lower than the state’s median. If your gross income is less than the state’s median income, you will still be eligible even if you have not paid all of your monthly obligations to complete a Chapter 13 repayment program.
There are other criteria. You won’t be able to file for Chapter 7 bankruptcy if your bankruptcy filings date back between six and eight years, depending on the type of bankruptcy filed. You can file wherever you like, depending on how long you have lived in the state.
It takes between four and six months to complete the Chapter 7 bankruptcy process. You only need to visit the courthouse once to file your Chapter 7 bankruptcy petition.
Your bankruptcy proceedings will begin after you have filed a petition with the bankruptcy court in the area. The forms will be filled out with information about:
In addition to filing the bankruptcy papers, you must also receive credit counseling from an authorized United States Trustee. The Trustee website lists all authorized agencies in each state. The website will include “Credit Counseling and Debtor Education.”
You get an “automatic stay” when you file Chapter 7 bankruptcy. Most creditors cannot immediately try to collect the debts you owe. The automatic stay stops them. Creditors cannot garnish your earnings, empty your bank accounts, take your vehicle, home, or other property, or cut off your utility service.
You are effectively transferring control of your assets to the bankruptcy court by filing Chapter 7 bankruptcy. You can’t sell your property or pay off pre-filing debts without the permission of the court.
With a few exceptions, you can do whatever you like with the property you acquire and the money you make from filing bankruptcy.
The Bankruptcy trustee for Chapter 7 Bankruptcy (or Bankruptcy Trustee) oversees the bankruptcy process.
The court exercises control through a “bankruptcy trustee,” who is selected by the court. The trustee is responsible for ensuring that creditors receive as much as possible. The amount of assets that are recovered by creditors is what the trustee gets paid.
The trustee or the trustee’s staff will review your documents and search for exempt property to be sold for creditors’ benefit. To free up assets for creditors, the trustee will also examine whether financial transactions made in the year before your filing can be reversed. In most Chapter 7 bankruptcy cases, the trustee finds no value to be sold.
A week or so after your bankruptcy filings, you will receive notice of a “creditors’ meeting. The bankruptcy trustee will conduct the meeting and ask questions about your bankruptcy. In most Chapter 7 bankruptcy cases, this is the only trip the debtor makes to the courthouse. Most creditors’ meetings last less than 10 minutes.
Most property owned by Chapter 7 creditors is exempt from the requirement to obtain money for creditors. Although it can happen, most creditors don’t lose their property. It is smart to learn about the types of property that are frequently excluded.
After the 341 creditors meeting, if the trustee discovers that you have a non-exempt property (property that you can’t keep), you might be required to surrender the property or provide the trustee with a similar property or cash equivalent.
The trustee may “abandon” property that isn’t valuable or difficult to sell. You would be allowed to keep the property, even if it isn’t exempt.
Be aware that bankruptcy exemptions can vary from one state to another. You can find more information under Bankruptcy Exemptions & Your Property.
Secured debt refers to a situation in which you pledge property as collateral for a loan. Most commonly, collateral is cars and houses. Your creditor might request that your automatic stay be lifted if you are behind in your payments.
This will allow them to seize your house or foreclose it. You can keep the property if you are current with your payments and continue to pay the payments as normal — until the property can support the trustee’s sale.
If a creditor files a lien against your property to collect a debt you haven’t paid, the debt will be secured. You may be able to get rid of the lien in Chapter 7 bankruptcy.
What happens to your property and debts in Chapter 7 bankruptcy? This article provides detailed information about how secured debts are managed.
At the end of bankruptcy proceedings, all of your obligations are discharged by the court.