What is Chapter 7 Bankruptcy?

By | September 16, 2013

Chapter 7 bankruptcy is one of many processes in which a person can deal with accrued debt that they are unable to pay back. Through what’s known as “liquidation,” chapter 7 bankruptcy involves a trustee canceling most of, if not all, debt and then selling off a portion of available assets to pay off any remaining debt. For those interested in declaring this type of bankruptcy, so named due to its location in chapter 7 of the federal bankruptcy code, here is a compendium of the information that you’ll need.

How Long Does It Take?

In general, declaring this type of bankruptcy will invoke a process that can last roughly four to six months. Thankfully, as long as the process might be, it typically only involves one trip to a courthouse. In terms of cost, it usually involves a charge of about three hundred dollars to cover the cost of administration and filing.

How Can I Find Out If I Qualify?

In order to qualify, you’ll first need to complete a counseling session with a United States approved agency that specializes in credit counseling. One of the biggest stipulations for qualifying is that you must not have previously declared bankruptcy in the past six to eight years. Alternatively, you will also not qualify if you can feasibly pay back your expenses, as laid out in the repayment plan that can be found in chapter 13. Luckily, any bankruptcy attorney can inform you on whether or not you qualify and what the next step to take should be in your case.

What Forms Do I Need?

When filing a bankruptcy claim, you will be required to fill out a number of forms and submit them to your local bankruptcy court. In these forms, you will be asked to describe the following:

  • The property that you currently own.
  • What your current income is, as well as an outline of your monthly expenses.
  • A list of any debts that you have currently accrued.
  • Any property that is exempt from liquidation as per the laws of your bankruptcy claim.

That last one is of particular significance, as most states have a provision that allows you to retain certain property and other benefits that you have not already spent, such as social security. Again, a verified bankruptcy attorney can guide you through this process, as well as what property you’ll be allowed to keep and what needs to be listed as expendable.

What Exactly Does Declaring Bankruptcy Do?

The reason that declaring bankruptcy is so effective is in its “Order for Relief,” which is a fancy way of saying that creditors are no longer allowed to chase after you for money. Through bankruptcy, creditors are temporarily prevented from touching your wages or bank account, or go after any of your property like your home and car.

As much of a relief as that may be, there are still some legalities that are worth mentioning. For one, once you’ve declared bankruptcy, your property and debts are now under the jurisdiction of the bankruptcy court. As a result, you can no longer make transactions based around your property without first obtaining the court’s explicit permission. While there are exceptions to this rule, which a bankruptcy attorney can make clearer, it is in general not a good idea to pursue the buying or selling of property while undergoing a bankruptcy claim.

Who Looks Over My Claim?

The court takes control over your property and debt through what’s known as a “bankruptcy trustee.” This person is authorized by the court to communicate with your creditors and ensure that they are paid as much as possible, while also ensuring that your exempt property is not mismanaged. While it is their job to search for property that can be legally sold back to creditors, it’s not uncommon for them to leave things relatively untouched.

What is the Creditors Meeting?

A couple of weeks after you’ve filed your claim, you will be notified that you have been summoned for a creditors meeting. As serious as it may sound, it is simply a session that allows the bankruptcy trustee to ask you some questions related to both your bankruptcy claim and the papers that you have filed for it in order to ensure that everything you’ve said is the truth.

What About My Property?

Ultimately, the decision on what to do with your property will rest on the trustee’s determination of what property you own can be considered exempt from your bankruptcy claim. Any property found in this way will either be given over to the trustee to be liquidated or paid for in equivalent value.

With this in mind, there are some exceptions. In particular, if a certain piece of property is considered too difficult to sell, the trustee may choose to abandon it. In this scenario, you are allowed to continue owning the property, regardless of its status in relation to your bankruptcy claim. In general, most property is found to either be exempt from the trustee or too bothersome to deal with.

What is a Secured Debt?

A secured debt is simply the name for any property that is being used as collateral on a loan. Oftentimes this takes the form of a house or car, which is why debts can lead to the foreclosure of property. The only time that a property can be taken away is if the trustee feels that its sale would be equivalent to the amount that is still owed, otherwise you’re allowed to continue making payments on property you own as with before your claim.

Once the bankruptcy process has finished, all of your debts will be completely discharged by the court. There are, of course, a few exceptions, such as child support and taxes. Generally, though, you’ll find that declaring bankruptcy will help you to take back control of your life. end So shine

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