How to File Bankruptcy Under Chapter 7
Filing for Chapter 7 Bankruptcy Rules and Procedures
Aug 24, 2009
Filing for chapter 7 bankruptcy is the most straight-forward way for individuals to clear credit card debt, personal loans, repossession deficiencies, auto accident claims, business debt and judgments. How to file bankruptcy could appear rather daunting for someone who is new to the process, but it really isn't.
Chapter 7 Bankruptcy Laws
The Bankruptcy Abuse Prevention and Consumer Protection Act 2005 has introduced a series of changes to the laws.
- Non-exempt property. Any property that isn't exempt will need to be turned over to a trustee who will sell it in order to pay-off some of the money owed. Examples of non-exempt property include jewellery, valuable collections, a second home or an expensive sports car. These can only be protected under chapter 13.
- Means test. The amount earned during the last 6 months will need to be below the average for the state lived in. Those who can afford to contribute a minimum of $100 per month over 5 years will not be eligible. There are ways to legally reduce income, but that will need to be achieved through a bankruptcy attorney. Any overdue taxes will need to be paid prior to filing chapter 7.
Those who are unable to comply with chapter 7 laws because their income is too high or they have non-exempt assets that they wish to protect could opt for an alternative debt-free solution. It may be possible to start a Debt Management Plan, an unsecured debt settlement program or file under chapter 13 instead.
How to File Bankruptcy
- Official petition. Filing commences with an official petition, schedule and a statement of affairs. In order to satisfactorily complete these forms, It is necessary to have available, a list of all creditors, the type of debt and how much you owe each of them. A full, comprehensive breakdown of income and expenditure are also essential.
- Automatic stay. As soon as the petition is filed, collection agencies are legally prohibited from pursuing a debtor for repayment. This is referred to as an automatic stay. The only way this stay on proceedings can be halted is if a creditor is able to demonstrate that an asset will decline in value during any proceedings.
- Non-exempt assets. The trustee takes legal control of any non-exempt assets. Any income that is earned after filing for chapter 7 bankruptcy (lodging the official petition) cannot be taken by creditors. It is yours to keep.
The 341 Hearing
Approximately 20 to 40 days after filing your official petition, the appointed trustee will hold the first meeting of creditors (also known as the 341 hearing). Chapter 7 laws mean that it is obligatory that the debtor attends. Creditors are able to ask any questions about the debtor's property and debts. In practice, this is very unlikely to happen so don't become unduly concerned.
All creditors now have a further 60 days to convince the courts that filing for chapter 7 bankruptcy should not be permitted. Creditors can only contact the debtor with regard to the reaffirmation of debts. For example, making payments on an existing car loan. This must take place within 45 days of the 341 hearing and be filed with the court.
Just 60 days after the 341 hearing, the court will grant an order discharging all legally dischargeable debts. The mystique regarding how to file bankruptcy is now over. Filing for chapter 7 bankruptcy is a procedure that almost a million Americans go through each and every year. The new laws were only introduced to prevent this debt-free solution being abused, but it should hold no fear for the overwhelming majority of people who file chapter 7.
Sources
Lawyers.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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