A Chapter 7 bankruptcy is a legal proceeding in federal bankruptcy court which can release you from any necessity to ever pay your debts.
In doing this, however, you do stand to lose any non-exempt assets you may have (stocks, bonds, cash in savings accounts, valuable artwork, etc) to the trustee-in-bankruptcy appointed by the court. These are ordinarily sold and distributed amongst your creditors. This includes any income tax refunds that are due to you.
Fortunately, you are permitted to retain some important assets that the court considers exempt under federal law. These include your house, your car, clothing, personal items like furniture and house ware, etc. The usual cost due to the court for filing is just under $300.00.
What the Debtor (filer) Must Do
First you and your attorney must attest to the fact that you understand that you are filing factual information and also that data being provided is warranted under existing federal law. This simply means that you understand both the state and federal laws that apply to filing under Chapter 7. The required forms under §521 and the Means Test in Official Form B22A (which determines your ability to pay certain costs) and numerous other documents are complex for any layman at law and should be handled by an attorney.
If you make too much money to file Chapter 7, you should look at filing Chapter 13 Bankruptcy.
Filing a bankruptcy has become considerably more complicated since the Bankruptcy Reform Act 0f 2005 became law. It includes, among other things, the necessity that the debtor attends one class or credit briefing before filing. Today, attorney’s fees for filing a Chapter 7 range from about $1275.00 for a simple filing to as much as $2,500.00 for complex cases. Anyone who attempts to handle his or her own bankruptcy today can reasonably be said to have had a ‘fool for an attorney.’ These filings are just too complex for a non-lawyer to handle properly.
The Chapter 7 Timeline
In most cases, you can expect to be adjudicated a bankrupt within 4-6 months from the date your action is filed in the federal bankruptcy court. While there are some important things to consider and do prior to the actual filing, your case really begins on the day you file it with the court. This is the day that the ‘automatic stay’ (temporary injunction) goes into effect. It prevents your creditors from contacting you, harassing you or dunning you for payment in any way. The next important date is approximately 20-40 days after filing. This is the 341 meeting of creditors with the court-appointed trustee.
In most cases, unless the debt is very large, your creditors will probably not even show up. You (and your attorney) must be present and be sure to bring your social security card and a photo ID. If the trustee requests any additional documents, be certain that you supply them as quickly as possible. You can expect to be discharged within 60-90 days after the meeting of creditors.
What Happens to My Secured Property?
Certain property that is secured such as your house and a financed car, boat or RV, may be repossessed by the lender and cannot be discharged in a Chapter 7 action. The thing to do here is ask each lender to accept a ‘reaffirmation’ of your debt. This means that you agree, in writing, to continue making the payments after you are adjudicated a bankrupt. Most lenders are happy to agree, since you have discharged your other obligations and cannot file bankruptcy again for seven years.
You should try to avoid Bankruptcy at all costs!
I would recommend trying to consolidate your debts before turning to Bankruptcy.
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As a Bankruptcy attorney, I think your comments on Bankruptcy are incorrect. First, it is important to understand that Bankruptcy is a creature of Federal law. Federal law, however, gives the states the choice to decide whether or not to use the Federal exemption scheme to protect property or to go with the individual state exemption schemes. Under many State exemption schemes a Debtor stands to lose property whereas under the Federal Schemes most debtors do not lose anything. Only Fourteen States allow a Debtor to choose between the Federal scheme or the respective state schemes. The rest of the states force debtors to use their individual state schemes. Again, this distinction is important because most people filing a Chapter 7 Bankruptcy in a state that allows the federal exemptions do not lose anything, including tax returns. For instance, most people filing a Bankruptcy in Michigan (where Federal exemptions are allowed) will have far less painful experiences then people filing in a State like Arizona where only that State's exemption scheme is allowed.
Second, the way you explain how secured property is treated in incorrect. When debtors files a Chapter 7 Bankruptcy they are required to list all their creditors. If the court grants the debtors the relief requested in the petition by giving them a discharge, a debtors' legal obligation to pay those creditors is extinguished. This includes secured creditors. The distinction with secured creditors is that in most cases you cannot keep the secured property unless you continue to pay for the secured debt. Further, if you do not sign a reaffirmation agreement with the secured creditor before you get a discharge the creditor could take back the property if they wanted to do so. Whether they will do so usually depends on the type of secured property. For instance, with a car usually you will have to sign a re-aff agreement if you do not want the creditor to take the vehicle. With a house, however, in todays market a mortgage company is most likely not going to take the house back if you continue to make the payments even if it wants you to sign a re-aff and you refuse.
Bankruptcy experiences are based on a few factors: 1) the state the bankruptcy is filed in, 2) the circumstances of the person filing, and 3) the experience of the attorney helping the debtor.