The Basics of Chapter 7 Bankruptcy

In the last post, we discussed the logistics of filing a Chapter 13 bankruptcy. Now, we will discuss the Chapter 7 bankruptcy. If you are in need of bankruptcy forms, MyLegalEdge.com can help. If you don’t see the form that you need, just e-mail our staff at staff@mylegaledge.com. You may also leave your comments here at MyLegalReview.com. Now, let’s begin our discussion-

How Long Will it Take to File a Chapter 7?

The whole process to file Chapter 7 will take about four to six months and will cost you about $274.00.  If you have filed bankruptcy in the last 6-8 years, you may not be allowed to file again, depending on the type of bankruptcy you last filed.

Credit Counseling

The bankruptcy revisions of 2005 made it mandatory that those wishing to file bankruptcy must file a certificate showing completion of the the credit counseling class. For approved agencies, you can check the U.S. Trustee Program website.

What is the Automatic Stay?

When you file your Chapter 7 bankruptcy petition, you will be given the advantage of the automatic stay. The automatic stay keeps the creditors from hounding you. Basically, they can’t try to collect from you.

The Creditors Meeting

About two weeks after you file your petition, you will get notification concerning a meeting of your creditors. The bankruptcy trustee will run this meeting. You will be present and a notice will also be sent to the creditors that you listed in your petition. This meeting will take place in the courthouse and will only last a couple of minutes.

If after the meeting the trustee decides that you have some nonexempt property, you may be required to relinquish the property.

What is Exempt Property?

There are federal bankruptcy property exemptions and state bankruptcy property exemptions. The majority of states make you choose one or the other. Exempt property cannot be seized by your creditors.

Typically, the following items are exempt:

• part of the equity in motor vehicles (the amount varies from state to state)
• reasonably necessary clothing (no fur coats)
• reasonably necessary household goods and furnishings
• household appliances
• jewelry, to a few hundred dollars
• personal effects
• life insurance (cash or loan value or proceeds), (the amount varies from state to state)
• part of the equity in a residence (the amount varies from state to state)
• pensions
• public benefits
• tools of a trade or profession, to a certain value, and
• unpaid but earned wages.

The Chapter 7 Discharge

At the end of your bankruptcy discharge, you will receive a “clean slate.” However, there are certain debts that cannot be wiped out:

• debts that automatically survive bankruptcy, unless the court rules otherwise (for example, child support, most tax debts, and student loans), and
• debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).

Other Requirements

The Means Test: In 2005, the bankruptcy law was changed and now you must pass the means test to qualify to file Chapter 7. The means test was designed to keep those with higher incomes from filing Chapter 7 and place these individuals in the category of filing Chapter 13.

Initially, If your current monthly income is less than the median income for a household of your size in your state, you pass! You can then file Chapter 7. If you exceed the amount, you may be eligible to file for Chapter 13. Median levels vary from state to state. To find out the new median level for your state, check out the Census Bureau Median Family Income data on the U.S. Trustee Program website.

Debtor Education Course: Before you get your discharge, you must complete your debtor education course. This is a personal financial management course that is mandatory under new bankruptcy laws implement in 2005.

Obtaining a Chapter 7 bankruptcy discharge will assist you get things back on track and on the road to financial success. So, don’t take it lightly. Develop the financial management skills needed that will benefit you and your family for the long term.