Chapter 7 Bankruptcy: What to Expect When You File Chapter 7

When the word “bankruptcy” comes to mind, people often think of “Chapter 7” personal bankruptcy because it is the most common. Under this type of bankruptcy, most of a person’s debts are canceled. However, the person filing bankruptcy may have to give up certain assets.

How to File for Chapter 7 Bankruptcy Relief

There were certain amendments to the bankruptcy laws that went into effect in October 2005, which consist of a two-part test. This will determine if a person qualifies for Chapter 7 bankruptcy.

1: Determine repayment capacity: Debtor’s income is examined according to a certain formula, which exempts specific necessary expenses, such as rent and food, to see if the debtor can repay 25% of the “non-guaranteed unsecured debt. priority “.

2. Income Compared to State Median Income – The debtor’s salary is compared to the statewide median income.

If the debtor earns more than the state median income and finds that the person can repay 25% of the “non-priority unsecured debt,” the debtor will NOT be eligible for Chapter 7 Bankruptcy and will need to consider filing for Chapter 7 13 Bankruptcy.

The debtor must also have a meeting with a credit counselor sometime 6 months before filing for bankruptcy. He or she must also attend money management classes and must pay for them out of pocket.

The automatic stay

Once the debtor has declared bankruptcy, the debtor’s estate is protected by an “automatic stay”. This means that debtors cannot attempt to collect debts without first obtaining permission from the bankruptcy court. Therefore, the debtor does not have to worry about his home going into foreclosure, repossession of his car, eviction from an apartment, garnishment of wages or bank accounts, power outage, or any other action that creditors may try to take. to recover the money owed.

While the stay may prevent the debtor from being evicted from his apartment, any new obligations that the debtor may incur would be payable to his creditors. For example, if a debtor continues to rent an apartment, if you do not pay any rent increases AFTER the date the bankruptcy was filed, you may be evicted from the apartment.

The Chapter 7 Bankruptcy Process

A trustee is generally appointed by the court in a Chapter 7 bankruptcy case. The trustee’s primary duty is to make sure that your creditors are paid as much of the amount owed as possible to them. The more assets the trustee can obtain for your creditors, the more the trustee will be paid.

There will be a short hearing called a “meeting of creditors” that the debtor has to attend, but creditors generally do not show up for the hearing. The trustee asks the debtor questions about his assets and obligations. This hearing usually lasts about five minutes.

Once the trustee has depleted the debtor’s funds obtained by liquidating his nonexempt property, most of the remaining unsecured debts are written off.

All in all, Chapter 7 bankruptcy takes four to six months to complete.

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