Filing Chapter 7 Bankruptcy: A Procedural Overview

Chapter 7 bankruptcy is a liquidation proceeding.  If you own any non-exempt assets, they're sold by the Chapter 7 trustee and the money is dispersed to your creditors according to the priorities set up in the Bankruptcy Code.  In virtually all consumer cases, all assets are exempt.  There are, therefore, no assets to liquidate and no money to pay out to creditors. Chapter 7 is usually the easiest and quickest form of bankruptcy.  It's available to individuals, married couples, corporations and partnerships.

Before you'll be able to file Chapter 7 bankruptcy you'll have to pass means test.  The means test is a calculation that compares your average income for the last six months, annualized, to the average income for families of the identical size in your state. If your income is less than or equal to the state average income, you "pass" the means test and may file Chapter 7 bankruptcy.

You Start by Filing a Chapter 7 Bankruptcy Petition

Your Chapter 7 bankruptcy is begun by filing the official petition, schedules and statement of financial affairs. These forms require you to name all of your assets and all of your debts, along with some recent financial history.  This is the most important and most time intensive part of a bankruptcy filing.

It's crucial that you list all of your creditors with correct mailing addresses.  You must list all of your debts.  You must even list those debts that are't dischargeable and those you plan to reaffirm.

You must likewise name all of your property, along with any debts guaranteed by that property, and the sale value of the property.  "Property" as defined by the Bankruptcy Code means "assets" or "possessions."  It's not confined to just realty.

You must sign the schedules under penalty of perjury.  You then file the schedules with the bankruptcy clerk in the district in which you live. 

After you file your Chapter 7 bankruptcy petition, all the succeeding bankruptcy legal proceedings relate to your state of affairs as it existed on the date of filing.

The automatic stay moves into effect upon filing the petition.  The automatic stay creates a legal barricade to collection activities by creditors.  They can no longer contact you in an attempt to collect a debt.

The court then names a trustee and sends notice to all your creditors telling them that you've filed bankruptcy.  You'll get a copy of that notice at the same time as your creditors.

Initial Meeting of Creditors

You must appear at a meeting of creditors.  This is ordinarily called the section 341 meeting.  It gets its name from the section of the Bankruptcy Code that describes the meeting.  At the meeting of creditors, the trustee will interview you about your assets and liabilities.  Your answers are given under oath and carry the penalty of perjury.  Creditors can similarly question you about those issues, but they seldom do so.

After The Initial Meeting of Creditors

If you have several non-exempt assets, the trustee will take charge of them. The trustee will sell the non-exempt assets and apply the income to the expenses of administrating your case.  He'll also parcel out any left over money to creditors with allowed claims.  Each claim is appointed a priority according to the Bankrtupcy Code.  Those claims are paid off in order of the priority of the claims.  

The trustee may review your income and expense schedule to find out whether you have sufficient money remaining after your actual living expenses to give something to creditors.  Any money you make after the case is begun is yours.  It's out of the reach of creditors who have dischargeable debts on the date of filing.

Normally, the lone responsibility you have after the 341 meeting is to cooperate with the trustee by providing whatever information he requests.

Obtaining A Discharge

The trustee and your creditors have a 60 day period following the 341 meeting during which they may dispute your right to a discharge generally or the dischargeability of a specified debt.  Unless a request to deny your discharge is filed, the order allowing the discharge of debts is issued by the court soon after the 60 day time period passes.  If one creditor files a challenge to your discharge it doesn't preclude or hold the entering of a discharge of the rest of your debts.

As a condition to your discharge, you must complete a financial training course from an approved provider. The class usually lasts for several hours.  Most authorized providers make online classes available. Your failure to attend the course and file a certificate of completion of the course of study may result in your case being closed without entry of a discharge order. The court can charge you a new filing fee to reopen the case, file the certificate and enter the discharge.

You can usually expect your discharge within 4-6 months of filing your case. The discharge touches dischargeable debts that existed at the outset of your case.

Certain debts do survive a Chapter 7 bankruptcy discharge.  They're omitted from the discharge by law.  Those specific debts are taxes, child support, student loans, and liens.  If you reaffirm some debts they also survive the bankruptcy discharge.

Harvey L. Cox is a licensed attorney who runs a bankruptcy information site.  Please visit The Bankruptcy Info Center to get more quality bankruptcy information and tips.

There Is Life After Bankruptcy

file bankruptcy

Life after bankruptcy can have a great impact on your financial life. For some, bankruptcy provides a fresh start and debtors receive numerous loan and credit offers before their debts are even fully discharged. For others, bankruptcy prevents them from getting a decent interest rate on a house or other major purchase. It is always important to consider all of the ramifications and other options before making the final decision to file bankruptcy.

One of the biggest complaints that people have about bankruptcy for the sake of a new start is that it does not change a person's habits. Oftentimes, people get deep in debt because of bad spending habits or because of letting their credit cards and consumer debts get out of control. The actions you take after bankruptcy are vital to keeping the management of your finances under control. This is one reason that bankruptcy does not actually help people. Without behavior change, the majority of filers fall back into the same destructive spending habits that they had before their debts were discharged. Therefore, recognizing that you have a spending problem is vital before considering bankruptcy.

Once people have decided to go through bankruptcy, the next step is to change their personal habits in order to avoid the same predicament in the future. Credit cards are dangerous for people who have not shown that they can use them responsibly. A general rule is that if you are unable to pay the balance off every month, then owning a credit card is not in your best interest. Unfortunately, credit is all too often extended to these people soon after bankruptcy, which makes it easy to fall back into the same spending habits that resulted in a bankruptcy in the first place.

The final step following a bankruptcy is to deal with the negative ramifications it has on your credit. For purposes of getting a home mortgage, bankruptcy will stay on your credit record for the rest of your life. This could be bad news for the interest rate or the repayment terms of your mortgage even several years after bankruptcy. If you file bankruptcy due to one single major setback in your life, such as an illness that resulted in huge medical bills or a job loss, some mortgage companies will work with you. While it still shows up on your credit, mortgage companies that do manual underwriting can customize your home loan and they will consider your specific situation. Be sure to save any papers related to the event so you can present them to the mortgage company when it is time to buy a home.

You can take several steps and measures to lessen the negative effects that your debts have caused after bankruptcy. Contrary to what many people believe, bankruptcy is not the end of your financial world. Of course, the most important thing to do is to change your financial habits if spending was the cause of your bankruptcy. Personal habits are to blame for the majority of bankruptcy filings, but bankruptcies can also erupt from single events that destroy your financial plans. Either way, bankruptcy for people who have learned from their mistakes is not always a bad idea.

The New Bankruptcy Laws Usher In New Challenges

The New Bankruptcy Laws Make it More Difficult to File Chapter 7 Bankruptcy

The most recent changes to bankruptcy laws might cause it to be more difficult for you to file bankruptcy. If you're in a higher income bracket you'll no longer be permitted to utilize Chapter 7 bankruptcy.  Rather, you'll have to file under Chapter 13 bankruptcy and pay back at least a few of your creditors. If you would like to file bankruptcy, you must participate in credit guidance prior to filing.  You're likewise required to go to further counseling in the discipline of budgeting and debt management.  The additional counseling is a prerequisite to receive a discharge of your debts. And, since the law imposes new requirements on attorneys, you might have a more difficult time finding a lawyer to take on your bankruptcy suit.

Modified Eligibility for Chapter 7 Bankruptcy

Under the old bankruptcy laws, you were allowed to choose the type of bankruptcy that looked best for you.  In virtually all cases that would be a Chapter 7 bankruptcy liquidation rather than a Chapter 13 bankruptcy repayment. But, if you're in a high income bracket, the new bankruptcy laws won't allow you to utilize Chapter 7 bankruptcy.

To check out whether you're able to file Chapter 7 bankruptcy under the new bankruptcy laws, you must first assess your "current monthly income" against the median income for a family of your size in your state. If your income is lower than or equivalent to the median, you'll be able to file for Chapter 7 bankruptcy. If it's more than the median, however, you must pass a new test to file for Chapter 7 bankruptcy.  The new test is called "the means test."

The purpose of the means test is to verify whether you have sufficient available income, after deducting certain permitted expenses and mandatory debt payments, to make payments on a Chapter 13 plan. To ascertain whether you pass the means test, you take off particular permitted expenses and debt payments from your current monthly income. If the money that's left after these computations is under a certain amount of money, you'll be able to file for Chapter 7.

Counseling Requirements

Before filing for bankruptcy under either Chapter 7 or Chapter 13, you must attend credit counseling with an agency approved by the United States Trustee's office. The reason for this counseling requirement is that it assists you in discovering whether you actually need to file for bankruptcy or whether an informal repayment plan will help you regain your financial stability.

Counseling is essential even if it's obvious that a repayment program isn't workable for you.  You're expected only to participate in the counseling.  You don't have to go along with any repayment plan the agency offers. Even so, before you'll be able to file bankruptcy, you'll have to deliver any repayment plan the agency offers along with a certificate evidencing that you finished the counseling.

Toward the conclusion of your bankruptcy lawsuit, you'll have to attend a different counseling session.  This counseling session is fashioned to teach you personal financial management skills. You can't obtain the discharge that wipes out your debts until you give proof to the court that you accomplished this requirement.

Lawyers Might Be Harder to Hire -- and a Lot More Pricey

The new bankruptcy laws do add many complex requirements to bankruptcy filings. Some of these brand-new requirements impose more obligations on lawyers resulting in bankruptcy cases being more time-consuming. Among the leading new demands on attorneys is that they must now personally vouch for the truth of all the information their clients give them.  That extra demand means that lawyers must spend lots of time on every bankruptcy suit.  Therefore, they'll charge more to take every bankruptcy suit.   The new bankruptcy law demands have in reality forced a few bankruptcy attorneys out of the field completely.

Many Chapter 13 Filers Will Learn to Exist on Less

When you filed Chapter 13 bankruptcy under the former bankruptcy laws,  you had to pay all of your spendable income to your repayment plan.  The old bankruptcy laws defined spendable income as that which you had leftover after paying your actual living expenses. The new bankruptcy laws have modified this computation.  While you still must turn over all of your disposable income, if your income is larger than the average in your state, you don't get to figure your spendable income based on your actual expenses.  Instead, you have to work out your spendable income using permitted expense totals defined by the IRS. And these permitted expense amounts must be deducted from your median income during the six months prior to filing bankruptcy, not from your earnings every month.

Additional Changes

There are additional changes that can impact you negatively if you're filing or looking at filing bankruptcy.  For plain-English guidance in the new bankruptcy laws, get a copy of The New Bankruptcy: Will It Work for You?

Is Bankruptcy the Right Option for You?

Current economic conditions are causing a lot of people who have never before thought about filing bankruptcy to now view it as a potential solution to their financial problems. The problem is that not everyone can be helped by filing bankruptcy.  So, if you're one of those individuals who has never, until recently, given thought to filing bankruptcy, you need to know whether bankruptcy will help you or not.

Should You Even Be Considering Filing Bankruptcy?

As crazy as it sounds, there's no general test you can take to discover whether bankruptcy is appropriate for you.  You don't need a particular level of debt.  You don't need to make less than a certain amount of money. And, you don't even need to be in arrears in payments to your creditors.

Bankruptcy isn't a decision you make by checking off boxes on a flow chart.  Bankruptcy is a individual decision.  But, it's a individual decision that's founded on specific  factors in your life.  They are some of the things you need to look at before deciding one way or the other about bankruptcy.

1. Are you in financial distress?  You may be in financial distress if you're having difficulty paying the minimum payments on your credit cards.  And, if you're scarcely able to keep necessaries like food, clothing and shelter you're probably in financial distress.

2. Do you live paycheck to paycheck?  If you had even a moderate health problem, would it place you in a financial crisis?

3. Are you judgment proof?  Put differently, do you have no assets that can be seized and sold to pay off your liabilities? You may not need to file bankruptcy if you're judgment proof.  Then again, judgments do stick around for a while.  Each state's judgment rules vary on exactly how long a judgment can hang around.  But, what you need to consider is that your current bad situation may, and in all likelihood will, get better in the future.  If it does, those judgments that were of no interest during your financial crisis will concern you because you could face the seizure of your future assets.  Most lawyers will give you a free bankruptcy consultation.  You should use it to discuss this particular issue.

4. Are creditors and collection agents harrassing you?  Bankruptcy is one choice to end that harassment.  But, you may also halt it with a letter writing campaign under the federal Fair Debt Collection Practices Act and associated state law fair debt collection laws.   But, bankruptcy is in all likelihood the easiest choice if you're getting harrassed and you're in financial distress (see #1).

5.  Are you facing foreclosure? You'll be able to block a foreclosure by filing a Chapter 13 bankruptcy.  Chapter 13 allows you to restructure your debts and pay your mortgage arrearage over time.

Will Bankruptcy Help You?

Bankruptcy won't give you more income. So, if you don't earn enough money to support your lifestyle, bankruptcy isn't your solution.  You either need to lower your expenses or increase your income.  You may even need to do both.  But, you don't need to file personal bankruptcy.

Bankruptcy also won't help if your big debts are non-dischargeable debts. Bankruptcy law defines those debts that are dischargeable and those that are not.  The following is a concise list of several non-dischargeable debts in a Chapter 7 Bankruptcy under current bankruptcy laws.

* Recent taxes and government penalties
* Child support
* Criminal fines or court ordered restitution
* Personal injury awards where the debtor was intoxicated at the time of the incident
* Debts that aren't listed in the bankruptcy filing schedule
* Student loans (there are exceptions but it's almost impossible to meet the prerequisites for them.  So, it's better to view student loans as non-dischargeable)
* Debts that were part of a preexisting bankruptcy case but weren't discharged

Concluding Considerations for Personal Bankruptcy

Making Up One's Mind whether to file bankruptcy isn't an simple decision.  But, it's a decision you'll be able to make if you adopt a reasoned and well-balanced approach to it.  As part of your consideration, you'll need to weigh your emotions, your background, your spiritual beliefs and your values.  So, consider the following:

1. Do your own research.  Read everything you can about bankruptcy.  A wonderful resource for training yourself on bankruptcy law is the book The New Banktruptcy:  Will It Work for You?

2. Keep your future in mind. Consider of how you'll feel when the case is all over and you're out from under a mass of debt.  How will you feel about yourself in 6 months or a year?  Will you be pleased with your choice to either file bankruptcy or not file bankruptcy?

3. Find the right bankruptcy attorney for you.  A good spot to find bankruptcy attorneys in your area is Legal Match.  Virtually all bankruptcy attorneys will give you a free bankruptcy consultation.  Use that free consultation to question the lawyer.  But, when you begin interviewing bankruptcy attorneys, don't base your ultimate hiring decision totally on fee.  It will be tempting to employ the most low-priced. After all, you're in a financial crisis so the cheaper the better, right?  That's not always the case.  Interview the lawyer first.  Be sure you're a good match with that attorney.  Your bankruptcy lawyer will be working for you so you need to be comfortable with the general approach to your case.  You need to feel good about the interactions you have with the lawyer and staff.  You want a bankruptcy lawyer who will assist you through this crisis in a positive mode.  You don't want to feel judgment or disfavor from either the lawyer or the staff.

4.  Filing bankruptcy is a moral decision.  Don't kid yourself into thinking it's not.  But, you do have to make the decision that's best for you and your family.  So ask yourself:  "Is it more honorable to push a losing financial battle that puts your family's future at risk in an effort to pay back old debt?"  Or, is it more honorable to recognize you did your best, you couldn't make it work and you need a clean start that will allow you to devote your personal time and effort into activities that will more than positively affect your family's future?"

Only you can answer that question.  Take your time.  Make the proper decision for you and your household.  Once you've reached that decision, trust in your ability to make the proper choice.  Then, move ahead knowing that your financial troubles will soon blow over.

Facing Foreclosure? What Do You Do?

Debt management

No one wants to face foreclosure, however there are some instances where it cannot be avoided. When facing this particular financial issue, there are a few things that you can do. Budget mismanagement and buying a home that cannot be reasonably afforded are some reasons people face foreclosure, along with other financial difficulties such as a job loss, accidents or loss of a family member.

Debt Consolidation

Facing it however does not mean you are in it so there are a few things you can do to help yourself out and be able to keep your house. First look at what can be done at the purchase of a house to prevent this situation from occurring. Payment insurance is one option. The mortgage payment is covered in the event of injury, loss of life, or financial difficulties up to a certain point. Like home owner insurance, the payment insurance is an added expense, but it can save you a lot of hassle in the long run.

{Steps to Take}

If you find yourself with the possibility of foreclosure exists after the purchase of your home, then it is necessary to consider the various options available to you. Looking over the household budget and considering where you can reduce spending is the first option. Things like subscriptions to mail order online movie rental sites, subscriptions to cable or Satellite TV provided you are not on a contract should be canceled. The added money can be enough to keep your head above water and the roof over it while you work on more permanent solutions to the problem.

Sell things off, you might be surprised what you can get for normal household items you do not even use. See what you can find when you clean out the attic, garage, or storage unit. You may find enough to make yourself a decent take on a garage sale or EBay. Contact your student loan holders to check if you qualify for deferments. The money you save from these payments can affect a big difference when facing foreclosure.

Second jobs are always an option as well if you have the time. Helping other people with errands, mowing lawns, and babysitting are ways for teenagers living at home with you can help out c. If you qualify, apply for government assistance to help with food expenses. Based on your income level, you may qualify for temporary assistance if there is any in your area. These are all things you can do when facing foreclosure.

Credit Counseling