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Chapter 7 Bankruptcy: What 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 overwhelming debt, with notable exceptions such as student loans.
By Sean Pyles Senior Writer | Personal finance, credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. The show "Smart Money" Sean talks with Nerds on the NerdWallet Content team to answer listeners' personal finance questions. With a focus on shrewd and practical money tips, Sean provides real-world guidance that can help consumers better in their finances. Beyond answering listeners' money questions on "Smart Money," Sean also interviews guests who are not part of NerdWallet and produces special segments on topics like the racial inequality gap as well as how to get started investing and the background for student loans.
Before Sean took over podcasting for NerdWallet He also covered issues that dealt with consumer debt. His writing has been featured on USA Today, The New York Times and other publications. When Sean isn't writing about personal finances, Sean can be found playing in the garden, taking runs and taking his dog for long walks. He lives in Ocean Shores, Washington.
Updated on Aug 6, 2021 3:31PM PDT
Written by Hanah Cho, Vice-President Personal finance Hanah Cho is Vice President of Content. She was the leader of several NerdWallet teams that were focused on personal finance before becoming deputy director and then director. She first was hired by NerdWallet as a writer covering small-scale businesses. Before that, she covered startups and business for The Dallas Morning News, as well as a prior journalist for business at The Baltimore Sun. She was also treasurer for The Texas Chapter of the Asian American Journalists Association.
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Table of Contents
Table of Contents
Chapter 7 bankruptcy can wipe away a myriad of types of overwhelming debt with the help of the federal court. You might have to give up some items, like a luxury vehicle or jewelry, however, most bankruptcy filers don't. Chapter 7 bankruptcy is the most popular and fastest type of bankruptcy.
Chapter 7 bankruptcy erases most non-secured debts, that 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, judgements, alimony, child support, as well as student loans generally don't qualify for. Chapter 7 bankruptcy will leave an ominous mark on your credit reports for a period of 10 years. In this time, you'll probably be unable to obtain credit. But, you'll see your credit scores start to recover in the months after you file.
Learn more about how you can qualify for Chapter 7 bankruptcy, how to file, if this debt relief option is right for you, and how you can rebuild your life after bankruptcy.
Do you qualify to file Chapter 7 bankruptcy?
To qualify for Chapter 7 bankruptcy you:
Have to pass the test that examines your earnings as well as assets and expenditures.
It is not possible to complete the Chapter 7 in the or within the last six years.
Cannot have filed bankruptcy papers (Chapter 7, 13) within the preceding 180 days. The petition was dismissed because you failed to show up in court or to comply with order of the courts, or have voluntarily withdrawn your own bankruptcy filing due to creditors seeking court relief to recover their property that they were able to levy on.
How do you file Chapter 7 bankruptcy?
It's possible that you can complete the process in just six months. You'll need to follow a few steps.
You must complete pre-file bankruptcy counseling with a certified nonprofit credit counseling agency within 180 days before filing.
Before you start tackling the many documents required to complete Chapter 7, find a qualified bankruptcy attorney to help. It's difficult to know when you require debt relief however, this isn't a DIY situation. Missing or improperly completed paperwork can result in the case being dismissed or not having some debts dismissed.
File paperwork: Your attorney will help with filing your petition and other paperwork. But it's on you to gather all necessary documentation of the assets you have, your income and debts. An automatic stay goes into effect at this point which means that creditors are unable to take legal action against you and garnish your wages, or call you to demand payments.
Trustee will take over: When your petition is filed, a court-appointed bankruptcy trustee will take over the management of the bankruptcy process.
Meeting of creditors The trustee will set up the meeting between you, your lawyer and your creditors. You'll need to respond to concerns from your trustee and the creditors about your bankruptcy documents and finances.
Your eligibility is determined: After reviewing your documents The trustee will determine whether you're eligible to apply for Chapter 7.
Non-exempt property is handled: The trustee determines whether the assets that aren't exempt from selling, so that the proceeds can be given to creditors. Nonexempt property can include jewelry, or the equity in your home or vehicle if it's greater than the exemption limit set by your state. The majority of individuals Chapter 7 cases, however they're "no asset" cases where there are none of the nonexempt property to liquidate.
Secured debts: To resolve those secured obligations, asset which is collateralized could be ordered return to your creditor. You may also be able to redeem the collateral (you give the creditor the amount it is worth today) or reaffirm the credit (arrange to exclude the debt from bankruptcy and then continue to pay it back).
Education course: Before your case is discharged, you'll need to complete a financial education course at a reputable non-profit credit counseling organization.
Discharge In the three to six months after submitting your petition your case will be discharged. This means that any debts that are eligible are paid. In the next few days, your case will be closed.
Is Chapter 7 bankruptcy right for you?
Make sure you understand the distinction between Chapter 7 and Chapter 7. It makes sense in the following situations:
There aren't many assets for you.
Your debts that are causing problems total more than 50 percent of your income.
Your debts that are causing you problems could be wiped out, or forgiven, by Chapter 7. This can include things like medical bills as well as credit card debt. personal or payday loans.
It could take five years or more to pay off your debt even if you take extreme measures.
Some debts typically can't be removed in bankruptcy, like recent tax bills, child support and student loans. It's still an option but if the elimination of other types of debt will make enough money available to pay the debts that aren't eraseable.
The other common form of consumer bankruptcy, Chapter 13, may be more appropriate if you have higher assets and secured debts and can repay some or all of what you are owed.
are available, too for example, a debt management plan through an agency. You can also take advantage of the no-cost initial advice that credit counselors and many bankruptcy lawyers offer prior to deciding on a path.
Rebuilding after bankruptcy
Your financial life -- particularly your credit -requires some care when you are done, but having lots of accounts settled is a good starting point.
Take two steps to :
Make a financial plan Create an annual budget, establish financial goals, and think about getting the help of a non-profit credit counselor to help you along the route.
Rebuild your credit: Make all payments in time, and keep your credit balances low and .
Frequently asked questions Will bankruptcy affect my credit?
By the time you're ready to file bankruptcy, your credit files likely have some dents from discharged or late-paying accounts. After bankruptcy, however your credit score is likely to improve within six months.
What is the best way to file bankruptcy myself?
You must consult with an attorney when you are filing bankruptcy. It is because bankruptcy has many moving parts and a tiny clerical mistake could cause your case to be dismissed.
How long does you need to wait before filing for bankruptcy?
There are many steps involved in filing bankruptcy and, with the help of a qualified bankruptcy attorney you will be able to finish the process within six months.
Do bankruptcy filings ruin my credit?
By the time you're ready to file bankruptcy, you'll find that your credit files are likely to have a few dents due to late payments or discharged accounts. After a bankruptcy discharge, however your credit scores are likely to rise within the next six months.
What about filing for bankruptcy myself?
You must consult with an attorney when you are filing for bankruptcy. It is because bankruptcy has many moving parts , and a small clerical error can lead to your case being dismissed.
How long does the process take for filing for bankruptcy?
There are many steps in filing bankruptcy however with the assistance of a competent bankruptcy lawyer you should be able to complete the process in six months.
About the author: Sean Pyles is the executive producer and host of NerdWallet's Smart Money podcast. His writing has been featured in The New York Times, USA Today and elsewhere.
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