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A Crash Course in Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is commonly known as a “fresh start bankruptcy,” a “straight bankruptcy,” or a “liquidation bankruptcy.” Simply put, in a Chapter 7 bankruptcy you will keep all of the property you own up to certain dollar amounts called “exemptions”. The value of your exemptions will vary depending on where you live. If you have property worth more than your exemptions it can be sold by a Bankruptcy Trustee, with the money used to pay your creditors. But don’t worry, in the vast majority of Chapter 7 cases filed debtors keep all of their property.

Step 1

When you are ready, you will meet with an attorney to find out if Bankruptcy is right for you. At your first meeting, the attorney will tell you about your Bankruptcy options (including Chapter 7 and Chapter 13) and assist you in understanding the process. A skilled Bankruptcy attorney will answer all of your questions in an understandable way and provide you with a Bankruptcy Questionnaire. Don’t be afraid to ask questions, it is important that you be fully informed before you file your case.

Step 2

If you decide to file for Bankruptcy protection you will schedule a follow-up appointment to bring in your information. At this appointment, your will be asked to return the Bankruptcy Questionnaire you received at your first meeting which provides the attorney with information regarding your property, debts, income and expenses. You will also be required to produce certain documents such as paystubs, bank statements and tax returns. Again, ask questions!

Step 3

At your final appointment, the attorney will ask you to review and sign your Bankruptcy Petition. It is important that you read it carefully to make sure it is correct. Your Bankruptcy process will go much smoother if you provide detailed, accurate information.

Meeting with the Trustee

Approximately five weeks after the case is filed you will be required to attend a “Section 341 Meeting of Creditors.” Your attorney will attend this meeting with you. At the meeting you will meet with the Chapter 7 Trustee. The Trustee will interview you and ask you a series of questions about your case.The questions are straightforward not meant to trick you. You are there to testify as to the truthfulness of the information contained in your Bankruptcy papers. Although the meeting is designed to give creditors an opportunity to appear and ask you questions, they rarely attend. While the meeting is a very important part of the Bankruptcy process and you must be absolutely truthful in answering the questions, the atmosphere is informal and not meant to be intimidating or harassing. If you get stumped, your attorney will be there to assist you.

What Happens Next?

After your meeting, creditors have approximately 60 days to review your bankruptcy filing and file an objection. Although objections are rare, they sometimes occur if the creditor feels that the debt should be non-dischargeable under the Bankruptcy Code. If an objection to discharge is filed, your attorney will generally help to resolve the objection although an extra fee will probably be charged.

Your Discharge

When you finish your Chapter 7 Bankruptcy, debts such as credit cards, medical bills and unsecured loans will be discharged, or “forgiven.” Student loans, fines and most taxes (depending on the type and year) are not dischargeable and you must make arrangements to pay them after your Bankruptcy is finished. If you owe on a house, car or other property you must keep making the payments (reaffirm) in order to keep the property. Generally, your attorney will help you with the reaffirmation paperwork. If you would rather not make the payments on secured property, or you can no longer afford them, you can give the property back to the lender and you will have no liability on the remaining balance on the loan.

Once all issues have been resolved, or the time within which to file objections has passed, the Bankruptcy Judge will sign what is called an “Order of Discharge” which states that your debts are forever discharged. Shortly thereafter the Bankruptcy case will be officially closed and you will move forward in your life with your debts behind you.