If you are considering filing for bankruptcy, there are a few things you should know about the process and what to expect once you decide to file. First, you will have to decide if you are going to file Chapter 7 or Chapter 13 bankruptcy. Chapter 13 bankruptcy reorganizes your debt and creates a repayment plan for you to stick to so that you become debt free in a few years. Chapter 7 bankruptcy wipes out select types of debt (like credit card debt) so that you can be debt-free after filing.
Qualifying for Chapter 7 Bankruptcy
In order to qualify for filing Chapter 7 Bankruptcy, a you must first meet certain state income requirements. Your income must be equal to or less than the median income set by the state. If you do meet this requirement then you are eligible to file for Chapter 7 Bankruptcy; however, if your income is over the median income requirement, then the you will have to take a “means test” in order to determine eligibility for Chapter 7 Bankruptcy.
The means test will assess the your income and debts for the last six months; if there is a certain amount left over each month after paying creditors, then the you will not be eligible to file for Chapter 7 Bankruptcy. You can however, seek refuge in Chapter 13 Bankruptcy.
Who is Ineligible for Chapter 7 Bankruptcy
A debtor cannot file for Chapter 7 Bankruptcy if they:
- Do not meet the income requirements or failed the means test
- Had debts discharged in the last eight years under Chapter 7 Bankruptcy
- Had debts discharged in the last six years under Chapter 13 Bankruptcy
- Attempt or have attempted to defraud creditors or the bankruptcy court
- Failed to attend credit counseling
How to file for Chapter 7 Bankruptcy
Before you can officially file for Chapter 7 or Chapter 13 bankruptcy you will need to take a credit counseling course from an agency approved by the United States Trustee. In the course, you will explore other options to bankruptcy to ensure that filing for bankruptcy is your best and only option. Once you complete the course, you will receive a certificate of completion that will need to be submitted when you file.
In addition to the credit counseling course, there is a fee associated with filing for bankruptcy. When you file for bankruptcy, you will also have to provide information on income, expenses, secured and unsecured debts, sale of prior property, and a list of exempt and non-exempt property. Exempt property are the belongings the you are allowed to keep while non-exempt property can be taken by creditors to sell in order to pay off some or all of your debts. At the time of filing you will have to decide if you want to reaffirm any of your debt at the end of the bankruptcy process or return the property associated with the debt. Reaffirming the debt means that you will resume responsibility for the debt (like continuing to make mortgage or car loan payments in exchange for keeping the home or car).
You file for bankruptcy with your local bankruptcy court. Filing for bankruptcy does not require the aid of an attorney, but it is recommended so that the you have a greater chance to be able to retain the most property while eliminating the most debt.
Once you file for bankruptcy, the court will issue an Order of Relief, more commonly known as an Automatic Stay. This order will cease all collection actions against the you. No more phone calls, no more attempts to collect debts, and it even stops foreclosure procedures against the you. An automatic stay will also prevent wage garnishments, lawsuits, the filing of liens, and repossession of your home, car, or other property.
An automatic stay remains in place until the bankruptcy case is completed. If a bankruptcy case is dismissed, then the automatic stay will be lifted and all collection actions can resume.
The Role of the Trustees
After a you file for bankruptcy, the bankruptcy court will assign a trustee to your bankruptcy case. This trustee will be your point of contact during the course of your bankruptcy case and will make sure that you submit all of the necessary documentation. If you have an attorney, then your point of contact will be your attorney, who will correspond with the trustee about your bankruptcy case on your behalf.
The trustee will also determine how much income the sale of your non-exempt property will generate. If the amount is substantial, the income will be used to pay off your creditors (and how each creditor will be paid). If the income is not substantial enough, it is likely the trustee will “abandon” the property, allowing you to keep the non-exempt property.
The trustee will also be the one to schedule your meeting with the creditors.
The Creditors Meeting
The creditors meeting may also be called the 341 meeting. It is mandatory that you attend this meeting and it is usually set between 21 and 40 days after filing for bankruptcy. Typically, the meeting is held in an office or meeting room in a federal building (but may be held at the courthouse) and is overseen by the trustee assigned to your case. There is no judge that you must stand before but creditors are invited to the meeting to hear your case review and ask questions. During the meeting, the trustee will review and evaluate your case and all paperwork submitted. You will be required to present a photo id and your Social Security Card to prove your identification. Your trustee will inform you of any other documentation they require for the meeting.
The Discharge of Debt Under Chapter 7 Bankruptcy
A few months after your meeting with the creditors, the bankruptcy court will hold a discharge hearing. In this hearing, your debts will be reviewed to determine what will happen to them. Unsecure debts, like credit cards, will be discharged; while secured debts like a home or car loan will be reaffirmed or the property will be returned. Once the debt has been discharge, the creditor cannot attempt to collect on it. Some debts like student loans, child support, tax debt, or fraudulent debt are not discharged and will remain your responsibility to repay.