Chapter 7 Bankruptcy – What to Expect When You File Chapter 7

Website design By BotEap.comWhen the word “bankruptcy” comes to mind, people often think of “Chapter 7” personal bankruptcy because it is the most common. Under this type of bankruptcy, most of a person’s debts are discharged. However, the person who files for bankruptcy may have to give up certain assets.

Website design By BotEap.comHow to File for Chapter 7 Bankruptcy Relief

Website design By BotEap.comThere were certain amendments to the bankruptcy laws that went into effect in October 2005, consisting of a two-part test. This will determine if a person even qualifies for Chapter 7 bankruptcy.

Website design By BotEap.com1: Determine Repayment Capacity – The debtor’s income is examined under a certain formula, which exempts specific necessary expenses, such as rent and food, to see if the debtor can repay 25% of the “non-priority unsecured debt”.

Website design By BotEap.com2. Income Compared to State Median Income: The debtor’s wages are compared to statewide median income.

Website design By BotEap.comIf the debtor earns more than the state median income and finds that the person can pay 25% of the “non-priority unsecured debt”, the debtor will NOT be eligible for Chapter 7 bankruptcy and will have to consider filing for Chapter 13 Bankruptcy.

Website design By BotEap.comThe debtor must also have a meeting with a credit counselor sometime 6 months before filing for bankruptcy. He or she must also attend money management classes and must pay for them out of pocket.

Website design By BotEap.comThe automatic stay

Website design By BotEap.comOnce the debtor has filed for bankruptcy, the debtor’s estate is protected by the “automatic stay.” This means that debtors cannot attempt to collect debts without first getting permission from the bankruptcy court. Therefore, the debtor does not have to worry about their home being foreclosed on, their car repossessed, an apartment being evicted, wages or bank accounts being garnished, power being cut off, or any other measures that creditors may try to take to recover any money owed.

Website design By BotEap.comAlthough the suspension may prevent the debtor from being evicted from his apartment, the new obligations incurred by the debtor would be enforceable against his creditors. For example, if a debtor continues to rent an apartment, if they do not pay their accrued rent AFTER the date they filed for bankruptcy, then they may be evicted from the apartment.

Website design By BotEap.comThe Chapter 7 Bankruptcy Process

Website design By BotEap.comA trustee is generally appointed by the court in a Chapter 7 bankruptcy case. The trustee’s primary duty is to make sure that your creditors receive as much of the amount owed to them as possible. The more of your assets the trustee can obtain for your creditors, the more the trustee is paid.

Website design By BotEap.comThere will be a brief hearing called a “creditors’ meeting” that the debtor must attend, but creditors usually do not show up for the hearing. The trustee asks the debtor questions about his assets and obligations. This hearing usually lasts about five minutes.

Website design By BotEap.comAfter the trustee has exhausted the debtor’s funds obtained through the liquidation of his non-exempt property, most of the remaining unsecured debts are discharged.

Website design By BotEap.comIn total, Chapter 7 bankruptcy takes four to six months to finalize.