Most Americans think of filing for bankruptcy as a worst-case scenario, and in many ways, it is. It’s always best to explore less drastic options for managing debt since filing for bankruptcy has a serious negative impact on consumers’ credit reports and often requires giving up some assets.
That said, this powerful debtor protection tool provides a way out for those who have accrued significant amounts of dischargeable debt that they cannot reasonably be expected to pay back. Debtors who are already confident that it is the right path for them can read on to find out how to file for Chapter 7 bankruptcy to learn how to get started.
Step One: Complete Credit Counseling
Before filing for Chapter 7, debtors must complete bankruptcy counseling. The counseling must be completed within 180 days prior to the filing date and must be provided by a qualified non-profit agency.
Step Two: Find an Attorney
Filing for Chapter 7 requires some serious legwork, and it’s very important that debtors not miss any deadlines or make any mistakes on their paperwork. While it can be hard to justify spending money on a lawyer when debtors already have no expendable cash, it’s always the best option. Filing for bankruptcy without the help of a lawyer can lead to the case being tossed out or leave filers continuing to shoulder some potentially dischargeable debts.
Step Three: File the Petition and Other Paperwork
Attorneys can help their clients file bankruptcy petitions and other forms of paperwork. However, it’s up to their clients to gather all the necessary documentation, such as proof of assets, income, and debts. Once a debtor files a bankruptcy petition, it will place an automatic stay on creditors and wage garnishment.
Step Four: Assignment of a Trustee
Once the court receives a debtor’s bankruptcy petition, it will appoint a trustee. This trustee will be responsible for managing the process from here on out.
Step Five: Meeting of Creditors
The court-appointed trustee will schedule a meeting of creditors. The debtor’s lawyer will provide representation. Expect to answer relevant questions from creditors and the trustee.
Step Six: Confirming Eligibility
The trustee will review all the paperwork and the results of the meeting of creditors. He or she will then determine whether the filer is eligible for Chapter 7.
Step Seven: Distributing Non-exempt Property
Once eligibility for Chapter 7 is confirmed, the trustee will handle non-exempt property and assets. If the debtor has any real property that does not meet exemption limits, the trustee will liquidate them to pay off part of the filer’s debt.
Step Eight: Resolve Secured Debts
Filers with secured debts should expect any property that has been held as collateral to be returned to their creditors at this point. In some cases, they can redeem the collateral or reaffirm the debt, excluding it from bankruptcy, instead.
Step Nine: Education Course
Before the court discharges a bankruptcy case, the debtor will be required to take a financial education course. As with credit counseling, this course must be provided by a qualified non-profit agency.
Step Ten: Debt Forgiveness and Case Discharge
Once the debtor has completed all of the necessary steps as described above, his or her eligible debts will be forgiven. Soon after, the case will be closed. The whole process usually takes between three and six months from the original bankruptcy filing date.
The Bottom Line
The decision to file for bankruptcy is not one that should be taken lightly. Those considering Chapter 7 should first speak with a lawyer to determine whether they are eligible and if the benefits of filing for bankruptcy will outweigh the costs.