What is Chapter 7 Bankruptcy & How to File Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, commonly referred to as a straight or liquidation bankruptcy is a kind of bankruptcy that can be used to discharge a wide range of unsecured debts. If you're behind on your debts and can't afford your monthly installments and living expenses, filing Chapter 7 bankruptcy may be your only option for getting your finances back on track. You may, however, be forced to sell some of your belongings, which will have a long-term bad influence on your creditworthiness.

What Is Chapter 7 Bankruptcy and How Does It Work?

The court automatically places a temporary stay on your present debts when applying for Chapter 7 bankruptcy. Creditors will not be able to collect payments, garnish your salary, foreclose on your house, repossess property, evict you, or switch off your utilities. Your property will be taken into legal ownership by the court, and a bankruptcy trustee will be appointed to your case.

The trustee's responsibility is to examine your finances and assets and supervise your Chapter 7 bankruptcy. They'll sell nonexempt property that the bankruptcy won't allow you to keep and utilize the revenues to pay your creditors. The trustee will also set up and manage a creditor meeting, in which you and your creditors will go to a court and answer questions concerning your file.

The court will dismiss your outstanding debts (meaning you won't have to pay them) at the end of the procedure, which takes about four to six months from the time you first filed. Child support, alimony, court fees, some tax debts, and most school loans, for example, are often not dischargeable through bankruptcy.

How to File for Bankruptcy Under Chapter 7

You can file for Chapter 7 bankruptcy on your own or with the assistance of a professional such as a lawyer or with the help of a paralegal service. Some legal aid organizations and charity credit counseling organizations may be able to help you for free. The procedure will be substantially the same once you've determined that you're eligible:

1.  Attend counseling:

It all starts with an authorized credit counseling agency's individual or group credit counseling course, which can be done online or over the phone. You must accomplish this within 180 days of filing, with exceptions made in emergencies or when there aren't enough authorized agencies to provide the service.

2.  Fill the forms:

Your property, exemptions, creditors, income, recent transactions, and other financial information will be listed on your bankruptcy paperwork. If you have secured obligations, you must choose between paying off the debt, continuing to make payments, or surrendering the property to the creditor. The forms have a price, however, you can request a fee waiver based on your income.

3. Send verification documents to the bankruptcy trustee: 

Once the court has accepted your filing, you must send verification documents to the bankruptcy trustee, who will verify your bankruptcy paperwork. Previous bank statements, tax returns, wages, and business records are all examples of what you might find.

4. Creditor meeting:

Attend the trustee's creditor meeting and answer your documentation and position questions. Your creditors may opt out of the meeting because it is usually brief.

5. Participate in budget counseling: 

You must take a second course from a counseling service within 60 days of the creditor meeting. If you don't present your completion certificate to the court, your case may be closed.

6. Wait for your discharge notice:

The court can release your debts once it gets your certificate of completion, usually between 60 to 75 days after the creditor's meeting. You may be required to surrender the trustee your non-exempt property at this period, but you must not sell or gift anything to anybody until the trustee has permitted you to do so.

Bankruptcy is a financially, physically, and emotionally taxing process. However, if your expenses keep building up and you don't have the funds to pay your creditors, filing for Chapter 7 bankruptcy maybe your best alternative. It is possible to get out of bankruptcy and repair your finances and credit with the help of a paralegal service, but this will take time and patience.