Learn how Chapter 7 bankruptcy works from the beginning filing process to the final bankruptcy discharge.
If you are unfamiliar with the process of filing for bankruptcy, this article is an easy to understand concise summary of all the steps from beginning to end and also explains what to expect from the bankruptcy process. Chapter 7 is also known as “straight” or “liquidation” bankruptcy because, as stipulated in the law, some of your property may be sold to pay off the debt owed to creditors.
Time and Money Involved in Chapter 7 Bankruptcies
The Chapter 7 bankruptcy process, from start to finish, costs $306 in court fees and between $1,800 to $2,500 in attorney fees and takes about 4-6 months; usually with only one trip to the courthouse. Additionally, you must also complete a credit counseling program and a financial management class by agencies approved by the United States Trustee.
Who Can File
There are some limitations involved with filing for Chapter 7 bankruptcy. For example, if you already have received a bankruptcy discharge in the last 6-8 years (depending on the type of bankruptcy you filed) or if you could feasibly complete a Chapter 13 repayment plan based on your income, expenses, and debt burden.
Bankruptcy Forms
Filing for Chapter 7 bankruptcy requires filling out a petition along with a few other forms which then need to be filed with the bankruptcy court in your area. These forms ask you to describe:
- Your property
- Your current income and monthly expenses
- Your debts
- Property that you claim the law allows you to keep through the Chapter 7 bankruptcy process (called "exempt property") – In essence most states allow you to keep some of your belongings to continue living comfortably such as clothing and household furnishings, social security payments, and other necessities such as a car or tools of your trade.
- Property you owned and money you spent during the previous 2 years.
- Property you sold or gave away during the previous 2 years.
Bankruptcy’s Immediate Relief—The Automatic Stay
One of the primary immediate benefits of filing for Chapter 7 bankruptcy is an effect known as an “Order of Relief”, or known informally as the automatic stay. The automatic stay immediately stops creditors from trying to collect what you owe, which, in turn, mean creditors cannot legally garnish your wages, empty your bank accounts, go after your car, house, or other property, or cut off your utility service or welfare benefits (as long as you are under the protection of the bankruptcy court).
Come back next week for the conclusion of our introduction to the Chapter 7 bankruptcy process.
References:
Kathleen Michon, J.D.”A Chapter 7 Bankruptcy Overview” Nolo.com N.D. 4/19/2012. http://www.nolo.com/legal-encyclopedia/chapter-7-bankruptcy-overview-29571.html
