Chapter 7 Bankruptcy:
A Simple Guide
What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, also known as "liquidation bankruptcy," is a legal process designed to help individuals overwhelmed by debt. If you're struggling with credit card bills, medical expenses, or other unsecured debts, Chapter 7 might be a viable option to regain financial stability. By filing for Chapter 7, you can eliminate most or all of your debts, allowing you to start fresh.
Who Qualifies for Chapter 7 Bankruptcy?
To qualify for Chapter 7, you must pass a means test, which compares your income to the median income in your state. If your income is below the median, you typically qualify. Even if your income is higher, certain deductions can still make you eligible. It's essential to consult with a bankruptcy attorney to determine your eligibility.
The Chapter 7 Bankruptcy Process: Step-by-Step
Pre-Filing Credit Counseling: Before filing, you must complete a mandatory credit counseling session with an approved agency. This session typically lasts about 90 minutes and can often be done online or over the phone.
Filing the Petition: Your attorney will prepare and file a bankruptcy petition with the court, listing all your debts, assets, income, and expenses. Once filed, an automatic stay is put in place, stopping all collection efforts, including wage garnishments, foreclosures, and creditor harassment.
Meeting of Creditors (341 Meeting): About 20-40 days after filing, you'll attend a Meeting of Creditors. This is a brief meeting where the bankruptcy trustee and any creditors can ask you questions about your financial situation. Your attorney will be there to support you, and most creditors do not attend.
Trustee Review: “No Asset” Report or Asset Liquidation: After the Meeting of Creditors, the bankruptcy trustee will review your case to determine whether there are any non-exempt assets that could be sold to repay creditors. However, the vast majority of Chapter 7 bankruptcy cases result in a "no asset" report. This means that the trustee finds you do not have any significant non-exempt assets to liquidate, and your creditors will not receive any payment.
If the trustee does find non-exempt assets, they will proceed with the liquidation process. This involves selling the assets and distributing the proceeds to your creditors. However, it's important to note that most people who file for Chapter 7 bankruptcy do not have enough non-exempt assets to trigger liquidation. Instead, they receive a "no asset" report, and their debts are discharged without losing any property..
Debtor Education Course: After the Meeting of Creditors, you must complete a debtor education course. This course is designed to provide you with financial management skills to avoid future financial issues. It usually takes about 2 hours and can be completed online.
Discharge of Debts: If there are no objections from creditors or the trustee, your debts will be discharged approximately 60-90 days after the Meeting of Creditors. A discharge means you are no longer legally obligated to pay the debts listed in your bankruptcy petition.
Chapter 7 Bankruptcy Timeline
The entire Chapter 7 process typically takes about 4 to 6 months from filing to discharge. During this time, you'll be protected by the automatic stay, giving you relief from creditor actions and time to focus on rebuilding your financial future.
Is Chapter 7 Bankruptcy Right for You?
Chapter 7 bankruptcy can provide a fresh start for those drowning in unsecured debt. However, it’s crucial to understand the process and consult with a qualified bankruptcy attorney to determine if it’s the best option for your financial situation.
Contact Bankruptcy Attorney Ross Johnson Today for a Free Consultation
If you’re considering Chapter 7 bankruptcy, attorney Ross Johnson can help. For a free consultation, call (415) 234-0361 or reach out online.