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Chapter 7 Bankruptcy: What is It is and How to File
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Chapter 7 Bankruptcy: What is It Is and how to file
Chapter 7 can wipe out all debts, with significant exceptions, such as student loans.
by Sean Pyles Senior Writer | Personal finance and credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of NerdWallet's "Smart Money" podcast. On "Smart Money" Sean talks with Nerds across the NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on thoughtful and actionable money advice, Sean provides real-world guidance to help people improve the financial situation of their lives. Beyond answering listeners' money concerns on "Smart Money," Sean also interviews guests outside of NerdWallet and also creates special segments on topics such as the racial gap in wealth, how to start investing and the history of student loans.
Before Sean took over podcasting for NerdWallet the company, he also wrote about topics concerning consumer debt. His writing has been featured in USA Today, The New York Times and elsewhere. When he's not writing about personal finances, Sean can be found playing in his garden, going on runs , and walking his dog for long walks. He lives within Ocean Shores, Washington.
Updated August 6, 2021 3:31PM PDT
Edited by Hanah Cho Vice President Personal finance Hanah Cho, Vice President for Content. She managed multiple NerdWallet teams that were focused on personal finances before being promoted to director and deputy director. She was hired by NerdWallet as a writer, covering small-scale businesses. In the past, she was a reporter covering startups and business for The Dallas Morning News, and was previously a journalist for business at The Baltimore Sun. She was also treasurer of the Texas Chapter of the Asian American Journalists Association.
Many or all of the products featured here come from our partners who compensate us. This affects the products we write about and where and how the product is featured on the page. But, it doesn't affect our assessments. Our opinions are our own. Here's a list and .
Table of Contents
Table of Contents
Chapter 7 bankruptcy can wipe away a myriad of types of overwhelming debt with the help of a federal court. You might have to give up some assets, like an expensive automobile or jewellery, but the vast majority of people who file bankruptcy do not. Chapter 7 bankruptcy is the most efficient and popular type of bankruptcy.
Chapter 7 bankruptcy erases most unsecure debts, which is, debts without collateral, like medical bills, credit card debt and personal loans. However, certain types of debt, such as debts that are owed to the courts, such as back taxes, judgments, alimony , and child support, and student loans generally do not qualify for. Chapter 7 bankruptcy will leave an indelible impression on your credit report for 10 years. During this time you'll likely be unable to obtain credit. However, you'll likely see your credit scores start to improve in the time after you apply.
Learn more about how you can qualify for Chapter 7 bankruptcy, how to file, if this debt relief option is the right one for you, and the best way to rebuild following bankruptcy.
Do you qualify to file Chapter 7 bankruptcy?
To qualify for Chapter 7 bankruptcy you:
Have to pass the test that will examine your income as well as assets and expenditures.
Could not complete a Chapter 7 in the or a within the past six years.
You cannot have filed bankruptcy papers (Chapter 7, 13) within the preceding 180 days. The petition was dismissed because you failed to appear in court or adhere to court orders, or decided to dismiss your own petition due to creditors seeking court relief to recover the property they held a lien on.
How do you do you file Chapter 7 bankruptcy?
It is possible to complete the process within six months. You'll have to follow several steps.
You must undergo pre-filing bankruptcy counseling with a certified nonprofit credit counseling agency within 180 days before making the filing.
Before diving into the various forms needed to fill out the forms required to file Chapter 7, find a certified bankruptcy attorney who can assist. It's hard to when you need debt relief however, this isn't a DIY situation. Incorrectly or incompletely filled out paperwork can lead to your case being rejected or having some debts canceled.
File paperwork Your lawyer will help with filing your petition and other documents. However, it is your responsibility to gather all necessary evidence of all your financial assets, earnings and debts. An automatic stay goes into effect at this point, meaning that most creditors can't sue you, garnish your wages or make contact with you to request payments.
Trustee will take over: When your petition is filed the bankruptcy trustee appointed by the court will begin managing the process.
Meeting of the creditors: The trustee will arrange a meeting with you, your lawyer and your creditors. You'll need to respond to any questions brought up by the trustee and creditors regarding your bankruptcy form and financial situation.
The eligibility criteria is determined: After reviewing your documents, the trustee will confirm your eligibility for Chapter 7.
Nonexempt property handled: The trustee determines whether the assets that aren't exempt from selling so proceeds can go to creditors. It could be jewelry, or the equity in your home or vehicle if it's greater than the state's exemption limits. The majority of individuals Chapter 7 cases, however they are "no asset" instances where there's no items that are nonexempt to liquidate.
Secured debts: To resolve your secured debts, the asset held as collateral may be ordered return to your creditor. Or you may be able to either redeem the collateral (you pay the creditor what it's worth now) or renew the credit (arrange to exempt the debt from bankruptcy and continue to repay it).
Education course: Before your case is discharged, you'll be required to attend a financial education course from a qualified non-profit credit counseling organization.
Discharge 3 to 6 months after filing your petition, your case will be discharged, meaning that any debts that are eligible are paid. In the next few days, the case is closed.
Are you sure? Chapter 7 bankruptcy right for you?
Be sure to know the distinction between Chapter 7 and Chapter 7. It makes sense when:
You don't have a lot of assets.
Your debts that are causing problems total more than 50 percent of your income.
Your debts that are causing you problems can be discharged, or forgiven, by Chapter 7. These include debts such as medical bills, credit card debt and individual as well as payday loans.
It would take five years or more to be able to pay off your debt even if you had taken extreme measures.
Certain types of debt aren't removed in bankruptcy, like recent tax bills as well as child support and student loans. However, bankruptcy may still be an option for you, though, if erasing other kinds of debt would free up enough money to pay for the debts which aren't eraseable.
Another common type of bankruptcy for consumers, Chapter 13, may be more appropriate if you have more assets or secured debts, and you are able to pay some or all of what you have to pay.
Also, there are options available and include debt management plans through an agency. Benefit from the no-cost initial advice that credit counselors and many bankruptcy lawyers can provide before making a decision on a path.
Rebuilding after bankruptcy
Your financial life -- particularly your credit rating -requires some care following, but having a number of accounts settled is an excellent starting point.
Do two things to :
Create a financial plan Create a budget, create financial goals, and think about enlisting the free help of a credit counselor from a non-profit organization to guide you on the process.
Rebuild your credit score Pay all your bills in time, and keep your balances on credit low, and .
Frequently asked questions Will bankruptcy affect my credit score?
If you're about to file for bankruptcy, your credit files likely have some dents due to late payments or discharged accounts. Following a bankruptcy discharge however your credit scores are likely to improve within six months.
How do I file for bankruptcy on my own?
It is recommended to hire an attorney before filing for bankruptcy. This is because there are numerous moving parts, and one small error in a clerical record could cause your case to be dismissed.
How long does it take to file for bankruptcy?
There are many steps involved when filing for bankruptcy however with the assistance of a qualified bankruptcy lawyer you will be able to complete the process in six months.
Can filing bankruptcy damage my credit score?
When you're ready to file for bankruptcy, you'll find that your credit files may have a few scratches due to late payments or discharged accounts. Following bankruptcy, however, your credit score is likely to rebound within six months.
What about filing for bankruptcy by myself?
It is recommended to hire an attorney when filing for bankruptcy. It is because bankruptcy has many moving parts , and a small error in a clerical record could result in your case being dismissed.
How long will you need to wait before filing bankruptcy?
There are a variety of steps to take when you file for bankruptcy however with the assistance of a certified bankruptcy lawyer you can finish the process in just six months.
Author bios: Sean Pyles is the executive producer and host of NerdWallet's Smart Money podcast. His work has been published on The New York Times, USA Today and elsewhere.
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