Chapter 7 Bankruptcy

Chapter 7 Bankruptcy may be a good option if you are facing crushing personal debt, and you do not have a monthly income sufficient to cover the payments on those debts. Chapter 7 is what many of us think of when we think of “bankruptcy.” If you need to get rid of your debts, a chapter 7 may be a good fit for you. A local attorney can help you determine if you qualify, and then instruct you on how to proceed.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is the most common form of personal bankruptcy in America. It is typically the quickest and simplest way to file bankruptcy, and results in the debtor liquidating their possessions to pay off as much of their debt as they can, then discharging the remaining debt and starting over with a clean slate. The typical alternative is a Chapter 13 bankruptcy wherein a debtor negotiates a payment plan with their lenders in exchange for keeping their possessions.

It is typical to have to give up your property in a Chapter 7 to help your creditors recover as much of your debt as possible before liquidating your debts and giving up on collecting anything more. This can be a concern if you own a car, a house, or other significant property. However, if you rent and do not own an expensive vehicle, you may actually not see this as a problem.

How do I file Chapter 7?

The first thing you should do is speak to a local attorney for a free case evaluation. You’ll learn a lot in just a few minutes with a knowledgeable local attorney, and you’ll get a feel for how comfortable you are with that particular attorney. Find an attorney that you are comfortable working with, and you can get started. From there, you will need to complete three items:

  1. Bankruptcy Means test
  2. Credit Counseling
  3. Debtor Education

Those items are detailed below. After completing those items, you will work with your attorney’s law firm to gather up the paperwork that you need for your case, and decide how to handle each of your debts. You should plan out which, if any, of your debts you want to keep after your bankruptcy. (For an example, see How Can I Keep My Home After Bankruptcy? and Can I Keep my Car After Bankruptcy?.)

Once you have completed your prerequisites, collected the necessary paperwork, and have planned out how to handle your debts, your attorney will schedule an appointment to file your bankruptcy at your county courthouse. You may need to meet your attorney there for the actual filing.

Bankruptcy Means Test

The first thing you’ll need to do is complete a Means Test. This test measures your household income and the debts that you owe. The aim of this test is to measure whether your debts present you with undue hardship, meaning that you cannot realistically afford to pay off your debts. If your household income is above your state’s average income, you may not qualify for a Chapter 7 Bankruptcy. But if you are considering bankruptcy, odds are that your debts are high and your income is low. This is the picture of a consumer who the Means Test identifies.

Credit Counseling and Debtor Education

After completing your Means Test, you will need to take a Credit Counseling course and a Debtor Education course. These are typically available online, and simply educate you about your options to deal with your debt. If, after completing these courses, you still want to continue with your bankruptcy, the courts will consider you a properly educated candidate. You will also learn skills during these courses that will help you manage your finances after you file your chapter 7 bankruptcy.