Chapter 7 Bankruptcy: A Step-By-Step Guide to the Filing Process
Filing for Chapter 7 bankruptcy can be a complex process with many steps involved. Here is a comprehensive walkthrough of the Chapter 7 bankruptcy timeline from start to finish.
Overview of Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is the most common form of bankruptcy filing for consumers. Over 90% of all bankruptcy cases are Chapter 7 filings.
In Chapter 7 bankruptcy, the filer turns over any nonexempt assets to be sold or liquidated by the bankruptcy trustee. The proceeds are then distributed to creditors. Many types of personal property and assets are exempt from Chapter 7 bankruptcy. The filer’s exempt assets are protected and not sold.
The primary benefit of filing Chapter 7 is discharging qualifying debts. Most unsecured debts such as credit cards, medical bills, personal loans, and utility bills can be discharged in Chapter 7 bankruptcy. Certain debts like student loans, alimony, child support, and recent taxes cannot be wiped away.
Below is an outline of the Chapter 7 bankruptcy process from the initial consultation to discharge.
Step 1: Initial Consultation with a Bankruptcy Attorney
The first step is scheduling an initial meeting with a qualified Chapter 7 bankruptcy attorney in your state. This initial consultation typically covers:
- Reviewing your financial situation, income, expenses, assets, and debts
- Determining if you qualify for Chapter 7 based on income limits and means testing
- Discussing bankruptcy alternatives like debt consolidation or settlement
- Explaining the basics of the Chapter 7 process and timeline
- Answering questions and addressing concerns about filing
The initial consultation allows the attorney to evaluate if Chapter 7 is the right fit and what exemptions you may be able to claim. It’s critical to provide complete and accurate information at this stage to get good counsel.
Step 2: Pre-filing Requirements
Once you decide to move forward with Chapter 7, there are some pre-filing requirements to complete:
Credit counseling course
All individual bankruptcy filers must complete a credit counseling course within 180 days before filing. This pre-filing credit counseling course overviewing bankruptcy and its alternatives usually costs around $50 or less.
At the end, you’ll receive a certification of completion to provide along with your Chapter 7 paperwork.
Gather documentation
Your attorney will provide a list of documentation needed to prepare your Chapter 7 petition and forms. This typically includes:
- Tax returns and pay stubs for the past 6 months
- Bank statements for all accounts over the past 6 months
- Credit reports from each of the 3 major credit bureaus
- Retirement and bank account balances
- Details on all assets, debts, income and expenses
- Vehicle titles and property deeds
- Other assets documentation
Thoroughly gather all requested documentation which will be used to fill out required bankruptcy forms. Failing to disclose assets and information accurately can risk your case getting dismissed.
File record of any prior bankruptcies
If you have filed for bankruptcy within the past 8 years, you must provide the record of your previous bankruptcy case. This is required for the court to determine if you qualify to file Chapter 7 bankruptcy again.
Step 3: Complete the Petition and Forms
Your attorney will use the documentation and information gathered to prepare and complete the Chapter 7 forms required to file with the bankruptcy court in your state.
The key bankruptcy forms include:
- Official Form 101 – Bankruptcy Petition: This voluntary petition for Chapter 7 begins the bankruptcy case. It includes basic information about you, your decision to file Chapter 7, and any prior bankruptcies.
- Schedules A-J: These schedules require extensive details on your real property, personal property, financial assets, debts owed, income, and expenses.
- Official Form 106Sum – Summary of Assets and Liabilities: This form summarizes your assets and liabilities from Schedules A-J.
- Official Form 122A-1 – Chapter 7 Statement of Current Monthly Income: This form calculates your current monthly income using details from pay stubs and your total household income. It determines if your income exceeds median state limits to qualify for Chapter 7.
- Official Form 122A-2 – Means Test Calculation: The means test uses your income, secured debt payments, and expenses to determine if Chapter 7 bankruptcy is presumption abusive based on income thresholds.
- Statement of Financial Affairs: This statement discloses your financial history over the past 2-4 years including income sources, payments to creditors, lawsuits, asset transfers, and other transactions.
- Statement of Intention for Individual Debtors: This optional form states whether you intend to retain or surrender the secured property named in your bankruptcy petition.
Double-check that all information provided on the forms is complete and accurate before signing. You may have to file amended forms later if mistakes are found.
Step 4: File the Chapter 7 Petition and Pay Fees
After thoroughly reviewing your bankruptcy paperwork, your attorney will file the Chapter 7 petition and forms with the bankruptcy court clerk’s office in the federal judicial district where you reside. The current filing fee is $338.
In addition to the filing fee, you will pay attorney’s fees averaging $1,150 – $1,750 for a typical Chapter 7 case. The court may allow paying the fees in installments.
Once your Chapter 7 petition is filed, you receive immediate relief from any wage garnishments, repossessions, or utility shut-offs. Section 362 automatic stay takes effect to halt collections against you.
Step 5: Attend the 341 Meeting of Creditors
Approximately 30-60 days after filing, you must attend the 341 meeting of creditors scheduled by the court trustee. This short mandatory meeting involves being placed under oath and answering questions about your bankruptcy petition and documents.
Bring a valid photo ID and printed copies of your tax returns to the 341 meeting. Perjury charges can result from intentionally providing false or misleading information under oath.
The meeting allows the trustee and creditors to ask you questions before the court discharges debts. In most cases, the meeting lasts under 10 minutes if the documents are accurate and complete.
Step 6: Complete Post-Filing Requirements
After the 341 meeting concludes, you’ll need to complete two final requirements:
Debtor education course
You must complete a debtor education course covering personal finance basics including budgeting and money management. This second mandatory course is usually around $15-25.
Provide tax returns
If requested by the trustee, you’ll need to provide copies of any tax returns filed while your Chapter 7 case remains open.
Step 7: Receipt of Discharge Order
Within 60-90 days after your 341 meeting, you’ll receive a Chapter 7 discharge order from the bankruptcy court. This legally wipes away many qualifying unsecured debts like credit cards, past-due utility bills, medical debt, personal loans, etc.
Any debts not eliminated by the discharge order can only be repaid according to the original terms of the loan or debt.
The discharge order gives you a fresh financial start! Note that certain debts like student loans, alimony, and priority tax debt cannot be discharged.
Conclusion
While Chapter 7 bankruptcy involves many required steps, an experienced bankruptcy attorney guides you through the complex process from start to finish. Thoroughly gathering documents, providing accurate information, and timely completing all paperwork helps ensure a smooth case. Within 3-6 months, most filers complete the process and receive debt relief through discharge.
If you’re struggling with excessive debts and need a fresh financial start, consider consulting with a bankruptcy lawyer to evaluate if Chapter 7 liquidation is your best debt relief option. With preparation and legal guidance, you can successfully work through the Chapter 7 process from your initial filing to becoming debt-free.