Chapter 7 bankruptcy is also called liquidation or straight bankruptcy. An individual files Chapter 7 to relieve them from most of their debt. The process can last three to six months. The length of your case will depend on the complexity of the case. To apply for Chapter 7, you will need to file a petition in bankruptcy court depending on the area you live in.

In addition to the petition, you will also be required to file other documents such as schedules of assets and liabilities, schedules of income and expenses, schedules of executory contracts and leases, and statements of financial affairs. 

When you file a petition for Chapter 7, an automatic stay goes into effect. An automatic stay prevents the majority of the creditors from collecting debt. Keep in mind that creditors can request the court to stop the automatic stay. When filing Chapter 7, there will be certain fees related to filing, administration, and the trustee. If the debtor cannot pay the fee, the court may waive the fee after applying for a fee waiver. 

Trustee Appointment

After filing for Chapter 7, the court appoints a trustee to the case. The trustee's role is to evaluate assets. Any assets deemed suitable are sold, and the revenue is used to pay the creditors. There are some exempt properties that the trustee does not use to pay creditors. These exemptions usually include assets that are deemed necessary to live and work. For example, pensions, or 401(k) plans can be exempt assets. 

The trustee will request documents such as bank statements, paystubs, loan documents, financial records, credit card statements. Other information requested for Chapter 7 will be all the names and debt related to creditors. 

Credit Counseling

As part of Chapter 7, it is mandatory to participate in credit counseling. Credit counseling aims at finding alternative options to paying your debt besides Chapter 7. Upon completion of credit counseling, the trustee should be provided with a certificate of credit counseling. The credit counseling agency is usually a non-profit agency and should be approved by the U.S. Trustee's office.

There are some exemptions related to attending credit counseling. For example, if you have a physical disability, you may not be required to attend credit counseling. You can find a list of approved credit counseling agencies at www.usdoj.gov/ust

As part of the process, you will need to take a means test. The means test evaluates if you are able to pay any portion of the debt. If the debtor's income is too high, the debtor will not qualify for Chapter 7, and the court may dismiss the case. 

The meeting of creditors is another part of Chapter 7. You will meet with the trustee, and with any of the creditors who choose to attend the meeting. Usually, the meeting of creditors takes place twenty to forty days after the bankruptcy petition is filed. You will answer any questions asked by the trustee and any of the creditors present. 

As part of the process, you will be required to participate in a financial management course. The course aims at teaching you how to manage your finances and credit history after the bankruptcy. 

Nondischargeable Debt

If the trustee and the creditors do not object, you will receive a discharge for most of your debts in bankruptcy court. Keep in mind that not all debt can be dischargeable. For example, child support, government-funded student loans, fines and penalties for the violation of law, etcetera, may not be dischargeable. If you are granted Chapter 7, you will have a loss in assets, and your credit score will be impacted. Moreover, the debtor will not be able to file for Chapter 7 bankruptcy in the next eight years that follow.  

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