This is an overview of Chapter 7 bankruptcy and how it is handled.
Chapter 7 bankruptcies, once instigated, will take four to six months to complete. Costs are minimal, around two hundred dollars plus attorney fees if you choose to have a lawyer file for you.
Chapter 7 can be filed by the individual in most states. There are several forms you will need to fill out, including your current income and property, your debts and living expenses, assets you owned or gave away in the last two years and assets and money spent in the last two years. You will also have to list your home, vehicle, tools of your trade, clothing, and household furnishings, even though these items are usually exempt from liquidation.
An emergency petition can be filed with the federal courts if you are facing an immediate repossession or foreclosure on your property. This will force a stay and allow you another 15 days to file the rest of the paperwork.
As soon as your papers are filed, you will be granted an "order of relief" or automatic stay against your creditors. Until the case is heard, they can no longer garnish your wages, turn off utilities, repossess your car or foreclose on your home.
After filing, you no longer have control over your assets or your debts, unless they were acquired after the filing. The bankruptcy court will assign a trustee whose job it is to determine how best to pay your creditors. After the trustee has determined how best to pay off your debts, he will then request a meeting between himself, you and your creditors.
Creditors rarely show up at these meetings, and they generally take only a few minutes, during which you will swear under oath that the information you have provided is true to the best of your knowledge. These meetings generally take place at the courthouse, and this is usually the only appearance you will have to make.
After your creditors meeting, the trustee will determine what you must do with non-exempt property. If he decides that it must be sold, he will either manage the sale or you will be expected to come up with its value yourself. Some items that the trustee determines to be too cumbersome to sell or of no value, will be abandoned, which means you will be allowed to keep them.
For secure debts that are not exempt, it will be up to the trustee whether or not the stay will be short-lived and these items can be repossessed or foreclosed. Generally, if you have kept the payments up on these items you will be allowed to keep them.
If after beginning this process you change your mind, you can file for a dismissal. Provided this will not harm the creditors, the court will generally grant this request. You can also re-file after a six-month period.
Once Chapter 7 takes effect or is discharged by the courts, you will not be able to file again for six years. After the discharge, all of your debts are wiped clean. This does not apply to child support payments, taxes owed or student loans. These must still be paid.
Chapter 7 bankruptcy is an extreme way to get out of debt. Once filed and discharged, rebuilding your credit will be slow. Any loans or credit cards will involve a higher interest rate and many financial institutions will turn your down for credit. It takes about ten years for bankruptcy to fully disappear from your credit reports, so it is not a situation to be entered into on a whim, but only as a last resort.
