Chapter 7 Bankruptcy FAQs — Individual Liquidation

1. What is Chapter 7 Bankruptcy?

A Chapter 7 Bankruptcy is a process, also known as a liquidation, which allows the debtor to keep certain assets and sell other assets, under the supervision of the bankruptcy court. In exchange for the liquidation, all debts are canceled. Under Chapter 7, a Court can relieve you of the responsibility to pay your unsecured dischargeable debts and let you keep your exempt property.

2. Who can qualify?

Essentially those with a current monthly income below the median income will be eligible. There are currently no minimum or maximum income limits or other income requirements or limitations for most bankruptcy filings, however under the new bankruptcy law (BAPCPA), only people who pass the bankruptcy “means test” may file a Chapter 7 bankruptcy. The “means test” applies when the debtors current monthly income is more than the State median. Under Chapter 7, individuals who reside, have a place of business, or own property in the United States may file.

3. How does Chapter 7 Bankruptcy Work?

A trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors.

4. Should I seek credit counseling before bankruptcy?

Under BAPCPA as a prerequisite to filing, Bankruptcy law requires the debtor to complete a credit counseling course. Additionally, after filing the Bankruptcy the debtor must take a financial management course. A failure to satisfy both courses and file certificates of both with the court will preclude a successful bankruptcy. Credit counseling courses typically run about $50.00 and can be completed in person, online, or over the phone at your convenience.

5. How long does the Chapter 7 bankruptcy process take?

A Chapter 7 bankruptcy typically takes 3-4 months from the time the petition is filed.

6. How long will bankruptcy stay on my record?

Generally, credit agencies are legally authorized to report a Chapter 7 Bankruptcy for 10 years. Although there are legitimate credit restoration companies that can begin to resuscitate your credit almost immediately after a Bankruptcy, no one can legally remove a bankruptcy notation from a credit record if 10 years have not yet elapsed. You should be suspect of anyone who claims that bankruptcy notations less than 10 years old can be legally removed, especially if they want to charge a fee to do this.

7. What are the advantages?

The greatest benefit a Chapter 7 Bankruptcy is often a fresh financial start which can relieve the financial burdens of stress and restore peace of mind. Once the Chapter 7 Bankruptcy Petition is filed, the collections calls and bills stop. Any lawsuit, collection action, repossession or garnishment pending against you is stopped in its tracks. Once the discharge is entered, you should have a real fresh financial start in a very real sense.

8. What are the disadvantages?

As mentioned earlier Bankruptcy will remain on your credit report from for a period of time. A Chapter 7 discharge does not eliminate child support and spousal maintenance (alimony), student loans (unless repayment would likely cause under hardship), it does not eliminate debts resulting from DUI or DWI; nor debts not dischargeable in a previous bankruptcy because of fraud, certain federal, state and local taxes, restitution, fines, or penalties. Also debts not listed or omitted from the petition can remain in force after discharge.

9. Should I stop paying creditors once I decided to file for bankruptcy?

Yes. Debts that can be discharged in bankruptcy such as credit card and medical obligations should not be paid once an informed decision is made to file a Chapter petition. Monthly bills such as as rent, mortgage payments, telephone, and utilities however, still must be paid.

11. How much does it cost to file Chapter 7?

The mandated court filing fees for filing Bankruptcy Chapter 7 are $ 299.00 USD. Plus, there is a the credit counseling fee which is usually in the $50.00 range. Attorneys fees vary depending on the complexity of the case (number and amount of real estate and unsecured debt involved) and the number of individuals involved (single or married), most attorneys charge between $1,500.00 and $5,000.00 to complete an individual Chapter 7 Bankruptcy.