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Chapter 7 bankruptcy may be an option for someone whose debt burden has become overwhelming. This procedure will eliminate most unsecured debts, allowing for a fresh start in financial endeavors. Knowing the steps involved helps ensure that your filing goes smoothly and effectively.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy is what is typically referred to as “liquidation bankruptcy.” This involves selling off nonexempt assets in order to pay off creditors. In many cases, the individuals may keep certain basic property, such as clothing, a few household items, and maybe a vehicle or a house, depending on the vow of exemption. Once the whole process ends, most of the unsecured debts, like credit cards, medical bills, and personal loans, are discharged, and one is no longer legally bound to repay them.
Step 1: Determine the Eligibility
Not everyone qualifies for Chapter 7. The first hurdle is the “means test,” which compares your income with the median income level in your area. If your income sits below the median, there is usually a presumption in favor of qualification. If over, you could still qualify, depending on the means test and, ultimately, your deduction of necessary living expenses.
Step 2: Complete Credit Counseling
Before you can file any paperwork, you will need to complete an approved credit counseling program. These sessions allow you to look into alternative forms of debt relief and gain a certificate to accompany your bankruptcy petition.
Step 3: File the Petition and Required Documents
Then, you will file for bankruptcy with the court, with much detail concerning your financial situation: your assets, your debts, your income, your expenses, and certain recent financial transactions. After this filing, an automatic “stay” comes into effect, preventing nearly all collection activities, including creditor harassment, wage garnishment, and lawsuits.
Step 4: Meet the Bankruptcy Trustee
After the filing, a bankruptcy trustee is appointed to oversee your case. The trustee is in charge of reviewing the documents you submitted, determining their truthfulness, and possibly liquidating any non-exempt assets for the benefit of creditors. You will also attend a “meeting of creditors,” where you will answer questions regarding your finances under oath.
Step 5: Take a Debtor Education Course
Before your debts can be discharged, you must also complete a debtor education course. This program covers budgeting and money management to help you avoid future financial problems.
This article was written by a professional, Alla Tenina. Alla is one of the best tax attorneys in Los Angeles, California, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. Visit www.teninalaw.com for more information. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
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