Managing your finances is not always easy, especially when you start examining outstanding liabilities. 

Filing for bankruptcy is a complicated process, but it can help you settle your debt. Even though it can’t fix all your financial problems, when you file, your finances may improve because it can take care of most of what you owe. Read on, and find out everything you might need to know about Chapter 7 Bankruptcy and what it means.

What Is a Chapter 7 Bankruptcy?

When learning about Chapter 7 Bankruptcy, it’s important to start with the basics of what it means. It’s the most common bankruptcy term people refer to, especially if they’re talking about types of bankruptcy in general.

Chapter 7 is the liquidation bankruptcy, which means that it can enable you to discharge certain debts. That includes personal loans, medical debts, and even debit and credit card payments.

It is the simplest and quickest type of bankruptcy, which is why many people want to know if they qualify for Chapter 7.

Who Can File a Chapter 7 Bankruptcy?

Unfortunately, not everyone can qualify for Chapter 7 bankruptcy. If your state’s median income is higher than your gross income, you may qualify.

You could still file for bankruptcy if your income is higher, but you would have to make monthly payments, especially if a Chapter 13 plan for repayment does not work for you.

There are extra requirements to file Chapter 7 bankruptcy. If you received a bankruptcy discharge in the past six to eight years, then you can’t file for Chapter 7.

Filing for bankruptcy is a complicated process, and you must fulfill all the requirements if you want to obtain credit card debt relief, as well as other types of help. Therefore, getting a bankruptcy attorney might be a good idea if you want to know everything about the process.

You may already know some bankruptcy basics, but if you hire an attorney, they can answer questions and explain everything you don’t understand.

What Does a Chapter 7 Bankruptcy Do?

If you get discharged undedr Chapter 7, it means that the bankruptcy court approved your debt relief. In other words, you can forget about credit card debt, medical bills, and so on.

Having unsecured debts can be very complicated, especially if you are already in a tight financial situation. However, if you qualify for a Chapter 7 bankruptcy, the debts you owe might be secured, and everything else could be easier.

Even so, you should keep in mind that qualifying is not easy. The court must appoint a trustee, and you have to pass a means test that examines your unsecured debts, secured debts, income, and more.

Filing for bankruptcy is a complicated process, but it can help you if your monthly income is not enough and if you can’t pay off your debts.

Forms You Need to File Chapter 7 Bankruptcy

The first thing to do when you file for Chapter 7 bankruptcy is to fill out several different forms. You have to include information about the following aspects:

• The debts you owe
• Student loans you may have to pay
• Personal loans
• Credit cars
• Living expenses
• Your property
• The property you’re allowed to have through the Chapter 7 bankruptcy process
• Any property you have sold or gave away over the last couple of years
• The property you used to own, and any money you spent over the last couple of years

You have to fill out all bankruptcy forms and file a petition. After that, you have to get credit counseling with a United States Trustee-approved agency. Otherwise, it is not allowed.

The credit counseling course trains you in several aspects of your financial education. If your qualify for Chapter 7 bankruptcy, then a few months after filing for it, your case may be discharged and all your debts might be paid.

Should You File for Chapter 7 Bankruptcy Right Now?

Several signs might tell you it’s the right time to file for Chapter 7 bankruptcy. However, the best way to know is to talk to a bankruptcy lawyer at least 180 days before filing since they are prepared to help you in your process. Going through it alone might be much more complicated. The signals you should look out for are the following:

• You pass the means test because your monthly income is lower than the median in your state
• Your credit score is below 600
• It’s impossible to keep up with the payments you need to make
• As much as you try, you can’t make the ends meet every month
• Your dischargeable debt is more than $10,000
• You’re not the owner of any expensive property
• There is no way for you to pay off your debts in the following five years

If you feel identified with the mentioned signs, it means it’s time to get help so you can improve your debt management. A bankruptcy attorney might guide you in the right direction, and suggest you file for bankruptcy as soon as you can.

What Is Automatic Stay?

You have to keep in mind several things before filing. Chapter 7 bankruptcy can be very beneficial, but by far, one of the best parts of qualifying for it is the “automatic stay” effect.

When you qualify for Chapter 7 bankruptcy, it puts into action something called the automatic stay. In other words, creditors cannot take hold of your possessions right away.

Chapter 7 bankruptcy offers you a fresh start because it helps you manage a vast majority of debts you may have. Even though the bankruptcy filing process can be complicated, credit counseling can be very interesting, and it might help you learn things you didn’t know before.

With the automatic stay effect, creditors can’t access your possessions, at least temporarily. Thus, you don’t have to worry about them going for your bank account, properties, car, or anything else.

The Court’s Control over Your Financial Affairs

Even though creditors cannot access your possessions, when you qualify for Chapter 7 bankruptcy, you are putting all your possessions in the hands of a bankruptcy court. All your properties and debts are theirs now.

Qualifying for Chapter 7 bankruptcy means you can’t sell your property or give it away unless you get consent from the court. Even so, there are a few exceptions, and you should consider them as well when you’re talking to your attorney.

How to File Your Chapter 7 Bankruptcy

There are a few steps you have to complete if you want to apply for a Chapter 7 bankruptcy, but keep in mind that hiring an attorney can make the process easier. The stages are the following:

Find All Your Documents

If you are still employed, then you only need to find your most recent pay stubs as well as the last two years of the tax returns of your income. If you can, you should also get a credit report and recent statements from the bank.

Fill Out the Forms

The forms are your petition, and they include all types of questions about what you owe, how much you earn, etc.

At this stage, most people get an attorney to help them with their forms. Even so, you could still fill them out by yourself if that’s what you prefer.

Take a Course

After filling out the forms, you have to take a credit counseling course, and you can easily take it online with a nonprofit credit counseling agency. It usually lasts 60 minutes, so you don’t need to worry about spending a lot of time in it.

Fill Your Forms with the Court

You can fill your forms in person, by mail, or even online, depending on what your court allows. If you hired an attorney, then they can do it for you. Fortunately, at this point, you’re almost finished. Nonetheless, there are still a few things to do, like dealing with the trustee.

Mail the Documents to Your Trustee

The bankruptcy court has to assign a trustee, and you need to send them your documents. Their job isn’t to judge your case, but they still have to oversee it.

On most occasions, the trustee may give you a mailing address, so you can send them all the documents. Sometimes they may ask for extra information, such as different bank statements.

Take a Course

After mailing your documents to the trustee, you have to take a course on debt management and financial management.

Even though filling out the bankruptcy forms is important and sending everything to the bankruptcy trustee is also essential, you need to prove you’re prepared for life if you qualify for bankruptcy.

The course is similar to the first one you take, and you can also take it online. It lasts 60 minutes, and once you get your certificate, you can show it the day you’re in court.

Meet with Your Trustee

You must attend a special meeting with the bankruptcy trustee, but it’s extremely short. Get in touch with them and find out when you have to meet.

The meeting usually lasts between 10 and 15 minutes, and nowadays, you can even attend via videocall. It usually consists of very specific questions you must answer.

Get Your Discharge Letter

If everything goes well with the trustee and the court-appointed session, you may get your discharge letters a few months later, which means that you qualified for the Chapter 7 bankruptcy.

Trustee for Chapter 7 Bankruptcy

The trustee is the way the court can exert control over your case. Their job is to oversee what you do and make sure you pay your creditors everything you owe them.

Furthermore, the trustee’s payment depends on the assets they recover for creditors. Thus, they have to worry about ensuring creditors get the best deals, which is why they have to examine your documents.

After close evaluation of your documents, they have to determine if everything is complete or not. Additionally, they have to look for a nonexempt property you could sell to settle your debts.

They also have to try to find transactions they can undo to free some assets for your creditors and pay off your debts. However, the transactions must be a year old, at most.

Is It Better to File a Chapter 7 or 13?

The difference between Chapter 7 and Chapter 13 is that in the second one, you don’t erase each debt immediately. Instead, you have to propose a repayment plan, and you can organize it depending on your ability to pay debts.

Once you propose the repayment plan, the court must evaluate it, and confirms it if you and everyone involved find it acceptable. You usually get three to five years to pay for everything.

Is Chapter 7 a Bad Thing?

Trying to qualify for Chapter 7 bankruptcy is not a bad thing. On the contrary, it shows that you understand your credit card is not enough to pay for all your debts, you don’t have any non-exempt property to sell, and you may have a lot to pay for, such as different loans.

What Can Happen to Your Property

In most cases, the property of the debtor can’t be used to raise money for the creditors because it’s considered nonexempt property. Thus, if you are a debtor, you don’t necessarily have to lose your property, but it may happen sometimes.

Once the meeting of creditors finishes, the trustee might say you have nonexempt property. If that occurs, you may have to surrender and give it to the trustee or provide them with the equivalent in cash.

Sometimes, the property may not be worth a lot. In those circumstances, the trustee might abandon it and you could keep it.

Secured Debts When You Get Chapter 7

Secured debts occur when you pledge property as collateral for a loan you get. A good example of that occurs with houses and vehicles.

When you are behind on payments, the creditor could try to get the automatic stay lifted and take the property from you or foreclose on it.

Some Debts Can’t Be Discharged

Unfortunately, even if you pass your means test, a Chapter 7 or a Chapter 13 bankruptcy can’t settle all your debts.

When you are a debtor with income that’s lower than the median income in your state, you may notice that settling each debt is very hard, especially if you have different credit cards and your credit score is low.

However, when you file Chapter 7 bankruptcy, you must keep in mind that it can’t solve all your problems, which is something you may learn when you contact the nonprofit credit counseling agency. The bankruptcy discharge can take care of the following debt issues:

• A credit card debt
• Loans for your car
• Judgments you can get from credit cards
• Personal and payday loans
• Judgments you can get from agencies specialized in debt collection

Nonetheless, if you are qualified for Chapter 7 bankruptcy, it can’t settle the next debt examples you may have:

• Child support
• Student loans
• Debt from personal injury cases
• The debt you may have from taxes or other government-related payments

What Happens at the End of the Bankruptcy Process

Unless the court says the contrary, after the bankruptcy process, the people in charge have to discharge each debt you have, except for student loans, child support, and similar examples mentioned above.

Sometimes, creditors may mention a credit report that shows debt is a product of fraud or any other malicious act, which might conclude in the court refusing to pay it off.

Your financial life, credit cards, property, and credit scores might need some attention after bankruptcy, particularly if you filed Chapter 13 bankruptcy because you have to follow a plan. At the same time, if you have payments to make such as child support, you may want to organize everything, so you can get positive outcomes.

To recover after filing bankruptcy, you should make a financial plan and try to achieve specific goals. A good creditor could help you especially if the trustee said your things were no asset cases, which means nothing you own is enough to pay your creditors.

Conclusion

Filing for bankruptcy is a complicated process, especially when you have low credit scores and you have to worry about everything from paying for the filing fee to finding the best attorney you can.

However, being free of debt is liberating. Even though it may be hard to make ends meet and pay everything you owe creditors, after filing there is an immense sense of relief.

Taking the first step is always the hardest part. Nonetheless, once you file for bankruptcy, your life can get better as you start paying off each debt.