How to File for Chapter 7 Bankruptcy
“How to file for bankruptcy” is a thought most people never want to consider. You might have tried to put thoughts of bankruptcy out of your thoughts, and you might be procrastinating about whether to declare Chapter 7 bankruptcy and how to go about declaring bankruptcy when you do. Declaring oneself bankrupt is a legal process, so you’re going to spend time and money in the court system.
Still, there are times when there is nothing less to do but declare bankruptcy. When you have tried debt consolidation, tried to renegotiate credit cards debts and second mortgages and there steps have failed, you have no option but to decide how to declare bankruptcy. Below is advice on filing for bankruptcy and setting the legal process in motion which will protect you from your creditors.
Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is the simply way to declare yourself bankrupt and avoid the wrath of your debtors. Chapter 7 is sometimes called straight bankruptcy, because it simply eliminates many forms of debt you had.
Singles, couples, partnerships and corporations can declare Chapter 7 bankruptcy, making Chapter Seven the most popular way for Americans to discharge their debts without paying them.
When you declare Chapter 7 bankruptcy, many of your outstanding debts are simply eliminated – as if you never had them. (Thought your bankruptcy will be reflected on your credit history report.) A court trustee will control your non-exempt assets. This trustee will liquidate your assets in order to pay back as many of your debtors as possible. Your income will remain your own and those debtors will not be able to collect on their debts from your income, though your trustee may be in your financial business for a while. For instance, if you are divorced and have child support payments, you will have your wages garnished and this money will go to the support of your children. Below is a list of other the examples when you are in Chapter 7 bankruptcy.
When Should You Declare Bankruptcy?
When you have no hope of repaying all your debts, you should learn how declare bankruptcy. If your creditors have taken court actions to force collection of debts on you, you should consider declaring bankruptcy.
- Consider Your Cosigner – One thing to consider is whether you have cosigners for your loans. If you do, there are two factors you should consider. One, this person might help you get rid of some of your debt, so you should approach this person about your common outstanding debt. Two, declaring yourself bankrupt will ruin this person’s credit. Since this person was good enough to co-sign for you, you owe this person the consideration to consult them on your imminent bankruptcy. Also, this person is likely to be motivated to help you dig yourself out of debt, since he or she is unlikely to want their good credit ruined. Finally, assuming you have affection and respect for this person, you should do everything in your power to avoid bankruptcy, to save them the troubles this will cause them.
- Your Credit Will Be Ruined – To declare bankruptcy is to have bad credit for 7 to 10 years. This is how long your Chapter 7 filing will remain on your credit history report. So declaring bankruptcy means you’ll have the cloud of bad credit on your credit history for many more years to come. Consider that bad credit from not paying your bills on time generally only lasts two years. So if you can’t pay the interest on your credit card balance or if you miss a car payment, this will be on your record a relatively short period of time compared to a person who has declared bankruptcy.
- Pay Your Bills In Cash – When you file for Chapter 7 bankrupt status, you will need to pay your court costs up front. This means that attorney fees, filing fees and court fees will need to be payed up front. You should look at this as a preview for life after bankruptcy. You’ll have to pay for a lot of things up front, including perhaps used cars.
- Reasons Not To Declare Bankruptcy – Also, if you are considering Chapter 7 bankruptcy, you should avoid this filing status if you are considering bankrupt status to avoid certain obligations. These are many exceptions which are not covered by Chapter 7 bankruptcy.
Exceptions to Chapter 7 Bankruptcy
Note that there are certain financial obligations not discharged by filing Chapter 7 bankruptcy. These include alimony payments, child support, back taxes less than 3 years old, student loans, contracts involving titles, liens and recent purchases for substantial amounts of money.
How To File For Chapter 7 Bankruptcy
- Get a Good Bankruptcy Lawyer – Ask around, so you’ll be able to hire a skilled and reputable bankruptcy lawyer. A good attorney in bankruptcy court is worth the investment, so don’t flinch at hiring a good attorney. Remember that you won’t be paying back your credit cards debts and a number of other outstanding debts, so pay the little extra money it takes to set this process in motion immediately. Look online to your state bar association to see if they make referrals in your area. Ask friends, family and co-workers about bankruptcy lawyers you can trust. You’ll learn pretty quickly that you aren’t alone in the debt crisis community.
- Keep Good Records – Organize all your bills and make notes about your mounting debts. Also, collect your bank statements and pay stubs for the past half-year or so. Even add your car loan information and house mortgage info. Take all of this to your debt lawyer when you meet for the first time. The more information you present, the better advice your lawyer will be able to give you.
- Give Full Disclosure – Inform your lawyer of all income you’ve had in the past six months. This include one-time payments and work bonuses. If you don’t disclose this and the court finds out, you’ll have your case thrown out and you’ll face legal jeopardy. Remember that the court will be in your financial records, so there’s a good chance they learn of any hidden payments.
- Include All Debt You Owe – When you make a bankruptcy petition, make certain you list every creditor and every bit of outstanding debt you owe. Be comprehensive. If the court finds out you are hiding some of your debt, it can throw out your bankruptcy case and you’ll be left facing your creditors with no out. Also remember that it’s a Federal crime to fudge your bankruptcy papers, because you are appealing for Federal bankruptcy protections. You can be fined substantial sums of money or even be sent to jail, if you don’t reveal all your debts.
- Learn Your Exemptions – To know your exemptions, ask your lawyer beforehand which property will be exempted in your bankruptcy case. Make sure you understand exactly what to expect in your bankruptcy proceedings, so you aren’t blindsided by losing property you expected to keep.
- Learn the Difference in Secured and Unsecured Debt – Secured debt is debt with collateral, like house mortgages and car loans. Unsecured debt is debt without collatoral, like hospital bills, student loans and credit card debts. Learning the difference in the two will help you understand a lot of what your lawyer is talking about when discussing your bankruptcy options.
- Know Your Undischarged Debts – Have your lawyer explain which debts will not be discharged by your bankruptcy filings. There are certain kinds of debt courts are unlikely to discharge. these include student loans, unpaid taxes, alimony payments and child support payments. Know going in that you won’t be off the hook for these.
- Determine Which Kind of Bankruptcy To File – Once you have seen all your debts and assets, discuss with your lawyer whether to fill Chapter 7 or Chapter 13 bankruptcy. Chapter 7 tends to involve mainly unsecured debts and is called a liquidation bankruptcy. Chapter 13 includes secured debts and is called an adjustment of debts, because Chapter Thirteen bankruptcy helps you catch up on your house payments.
- File Your Bankruptcy Papers – Once your bankruptcy petition is completed and fully reviewed, read over and verify the information. Finally, sign the petition. Have you lawyer file for bankruptcy online with your local bankruptcy court, or file via mail or in person with your local appropriate bankruptcy court.
- Know Your Rights – Once you have filed for bankruptcy, if a creditor contacts you about your debts, simply provide them with your bankruptcy case number and the date on which you filed your petition. This informs them you have an automatic stay, and they should not contact you again.
- Attend a Meeting of Creditors – Eventually, you and your attorney will attend a court-ordered “meeting of creditors”. The judge reviews your case and, assuming the meeting goes well, will provide you a discharge.
After Bankruptcy Is Filed
After you have filed for bankruptcy, the court will inform your creditors that you are declaring bankruptcy by sending them a Notice of Commencement. Once you have filed for bankruptcy, you’ll receive an “automatic stay” on your debts. This means your creditors must stop trying to collect on your debts. You now have bankruptcy protection. Note that new laws regulate petitioners who have prior bankruptcy filings, and sometimes the court will not grant an automatic stay in certain circumstances in regard to certain creditors.
The court will appoint a trustee to handle your bankruptcy case. This trustee makes certain you gave full disclosure during the bankruptcy process. This trustee collects all your liquid assets that you will not be allowed to keep and sell these assets. This is called “surrendering” your assets to the bankruptcy court. The funds from these assets will be distributed among your various creditors. In certain cases, the trustee will declare a “no asset” bankruptcy case. You are declared to have no assets that should be sold, and you’ll be able to keep everything you own.
Before going down the bankruptcy road, consider looking into Government Debt Consolidation Loans. Any kind of debt relief you can find reduces your chances of having to declare bankruptcy.