If you are thinking about chapter 7, and wondering what a chapter 7 involves, then there are a few things you need to know. But first, ask yourself this question, “is chapter 7 the right choice for you?”
Many people I talk to are overwhelmed with debt they simply cannot pay. You feel like you are out of options. You want to wipe the slate clean, and start all over.
Chapter 7 is a great choice to accomplish this goal in many cases. Do not forget, however, a chapter 7 is not the right choice for everyone, and not the right choice for all circumstances. Sometimes non-bankruptcy options work better than filing chapter 7 and sometimes, even if you could file a chapter 7, the chapter 13 may offer a better result for you than filing chapter 7.
Qualifying for Chapter 7
Initially, you need to be eligible to file a Chapter 7. Most people are eligible to file chapter 7 if they have not filed a prior bankruptcy in the last eight years and if their income is such that they cannot even afford to pay back some of the debt they owe.
If you do Internet research on chapter 7, you will see that there is a means test analysis that applies in many cases. Generally speaking, if a person’s income is below the median or average income for his or her family then chapter 7 will probably be an option.
If you are eligible, then your attorney will provide you with worksheets to fill out, listing in detail all of your income and expenses, and all of your assets and your bills. The chapter 7 bankruptcy petition is a 40 to 50 page document that lists a great deal of information – all required by federal bankruptcy law. As you might expect, you have to list your income and expenses, and all of your bills. But there is more.
Income and Assets
You also have to list your income for the last several years, whether or not you are entitled to receive any money by way of inheritance, or pending lawsuits like an automobile accident that you might have.
Most of your property will be protected by exemption laws, but it is possible in a chapter 7 to lose property as well. One example of property that can be lost as if someone dies in the six-month period after you file.
When this happens, whatever you would receive by reason of this person’s death will become property of your bankruptcy estate and in most cases you will lose it.
Also, if you have the right to sue anyone, whether or not you actually have filed suit against them, you are right to sue becomes part of your bankruptcy estate and your trustee will be entitled to receive the proceeds. Sometimes you can keep some of it. For example, in a personal injury case you can keep approximately 20,000, but the rest will have to go to the bankruptcy court.
You generally do not go in front of a judge and a chapter 7 bankruptcy. The meeting that you will attend with your attorney is called a meeting of creditors although creditors typically do not appear. This meeting is generally held about 6 to 8 weeks after your case file. This should be in most cases the only meeting outside of working with your attorney that you have to attend. After the meeting of creditors, also called a 341 meeting, you should receive a bankruptcy discharge in about 12 weeks.
Most of the work involved in filing a Chapter 7 case is the preparation of the case. There are numerous documents, car titles, tax returns, deeds and mortgages and other documentation that have to be provided to the bankruptcy attorney. Federal law requires that the attorney collect all of this information and make it available to the court for inspection. Failure to provide all of this information to your attorney can result in the case being dismissed.
Also, everyone filing for bankruptcy is required to attend a credit-counseling course before the case can be filed, and a financial management course after the cases filed before the court can issue discharge. These are normally done on the internet. If you do not attend pre-filing credit counseling than your case cannot be filed, and if it is filed without the pre-filing credit counseling the case will be dismissed. Also, if after you file the case you fail to complete the financial management course, you will not receive the discharge. Essentially, if this happens you will waste all the time and money that you spent getting the bankruptcy filed because you will not receive the discharge of your debt.
There are numerous steps involved in filing chapter 7 bankruptcy. In my office, we use multiple checklists covering hundreds of items that we check in every single case. The amount of work that goes into properly filing a chapter 7 bankruptcy is enormous.
Bankruptcy law is very technical and, in my opinion, best not done by general practice lawyers.
In selecting an attorney to help you with a Chapter 7 filing, it is a good idea to select a lawyer who has many years of experience, preferably a board-certified specialist, trained, certified and experienced in this complex area of law.