How to File Bankruptcy Under Chapter 7

You want to know how to file bankruptcy and fear that it will be too complex for you, but this isn't actually the case. Filing chapter 7 bankruptcy is a relatively straight-forward way to discharge yourself of most forms of unsecured debt. It is possible to clear personal loans, credit card debt, auto accident claims, business debt, repossession deficiencies and judgments. It's important to realize that it's not possible to discharge student loans, child support, alimony and most taxes. The laws were also changed in 2005 to prevent them being abused.

Chapter 7 Bankruptcy Laws

The introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act 2005 means that not everyone will now qualify under the rules. The new law dictates that your income during the last six months must be below the state average. This means that you will not qualify if you are able to offer your creditors $6,000 over 5 years or $100 per month. The other major alteration pertains to non-exempt assets (jewellery, valuable collections etc). Any items that aren't exempt will be sold by the trustee to pay your creditors. If you are unable to comply with the new code, you may wish to find out how to file bankruptcy under chapter 13 or start a debt settlement program.

Bankruptcy Credit Counseling

One of the changes introduced by the new law was that it is necessary to receive credit counseling from a government-approved organization within 180 days of filing. The cost is $50 (although this can be waived) and the session will typically last for between 60 and 90 minutes. The counseling session can be provided in-person, over the phone or via Internet.

How to File Bankruptcy

Official petition – Filing chapter 7 bankruptcy begins when a petition, schedule and statement of affairs are officially filed with the court. It is essential that you have a full list of all your creditors, the type of debt (secured, unsecured etc) and how much you owe each of them. It will also be necessary to provide details of your income and expenditure.

Automatic stay – Upon filing your petition with the court, creditors are no longer legally able to pursue you for the money you owe. The one proviso to this rule is that a creditor can apply to the court to remove this stay on proceedings if they are able to prove that the asset is likely to decline in value.

341 meeting – About 20 to 40 days after you have filed your petition, the trustee will hold a meeting of creditors. You must attend as it gives creditors the opportunity to question you in relation to your assets and debts. Don't become unduly concerned as questioning rarely takes place. Creditors will then have a further 60 days to convince the court that filing chapter 7 bankruptcy shouldn't be permitted.

Reaffirmation of debts – Under the new chapter 7 bankruptcy laws, you will need to reaffirm debts within 45 days of the 341 meeting. This simply relates to declaring your willingness to continue making repayments on a car loan, mortgage etc.

Discharge – You will be freed from all legally dischargeable debts 60 days after the 341 meeting has concluded.

How to file bankruptcy is not something that should initiate fear and trepidation. Filing chapter 7 bankruptcy allows you to become debt-free in as little as 4 to 6 months. Remember that it will show on your credit report for a period of 10 years so examine other debt solutions before proceeding.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 21 March 2011