Chapter 7 bankruptcy is a specific type of bankruptcy filing in which a trustee sells off all non-exempt assets to pay as many outstanding debts as possible. These sales are accomplished by a trustee appointed by the court and must be distributed according to a special set of priorities set out in bankruptcy code. This type of bankruptcy is also called straight bankruptcy or liquidation bankruptcy and can only be filed if you meet certain requirements.
Time and Money Costs
If you want to file chapter 7 bankruptcy, you can expect to pay about $300 in administrative and filing costs. You will only go to the courthouse once in most cases, but the whole process will take between four and six months. In some rare cases, filing chapter 7 can take longer.
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Requirements to File
In order to file, you must be unable to complete a chapter 13 bankruptcy. You must also have no bankruptcy discharges on record for the past six to eight years. If you aren't certain whether or not you can qualify, consider contacting a chapter 7 bankruptcy lawyer for more information.
The Filing Process
Filing for chapter 7 bankruptcy requires a lot of paperwork. You will have to describe where you live, how much it costs, and how much money you currently make. You'll also have to discuss your debts, all property you own, and all property you feel is exempt from sale. You will also be asked to describe your spending habits and property for the past two years.
Effects of Filing
As soon as you file for chapter 7 bankruptcy, you will receive an order for relief, or automatic stay, on the vast majority of your creditors. This prevents wage garnishment, removal of bank account funds, repossession and loss of welfare benefits or utility services. Filing also places all your debts and property directly under the control of a bankruptcy court.
You can no longer give away or sell property, pay off debts, or engage in most other financial interactions without the courts permission. You can still do what you like with any property you acquire or income you earn after filing, however. The bankruptcy court will appoint a trustee to look over your property and examine your papers, as well as checking out your past financial transactions. In most cases of chapter 7 bankruptcy filing, the trustee finds little to nothing that can be sold.
Meeting with Creditors
A week or two after filing, you and your creditors will need to attend a special meeting run by your trustee. You may be asked questions about your papers and the bankruptcy. After the meeting, the trustee will decide whether you have non-exempt property and require you to either surrender it or pay for it in cash. In some cases, the trustee will abandon the property back to you. This usually happens when the property would be hard to sell. The trustee can also lift the automatic stay to allow creditors to repossess cars or foreclose on homes if you are behind on payments.
Finishing the Proceedings
At the end of a chapter 7 bankruptcy, all debts except taxes, student loans and child support will be discharged, as well as any debts that were declared non-dischargeable. You do not have to pay most creditors and can start over again.
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