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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 the debt that is overwhelming, with some notable exceptions like student loans.
by Sean Pyles Senior Writer | Personal finance and debt Sean Pyles leads podcasting at NerdWallet as the host and producer of the NerdWallet's "Smart Money" podcast. In "Smart Money" Sean talks with Nerds from NerdWallet's NerdWallet Content team to answer questions from listeners regarding their personal finances. With a focus on shrewd and practical money tips, Sean provides real-world guidance that will help consumers improve their financial lives. In addition to answering listeners' financial concerns on "Smart Money" Sean also interviews guests outside of NerdWallet and also creates special segments on topics like the racial wealth gap as well as how to get started investing and the background of college 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 when he's not writing about personal finance, Sean can be found digging around his garden, going for runs , and walking his dog for long walks. Sean is located in Ocean Shores, Washington.
Updated on Aug 6, 2021 3:31PM PDT
Written by Hanah Cho. Cho is Vice President Personal finance Hanah Cho is Vice President of Content. She managed multiple NerdWallet teams that were focused on personal finances before being promoted to director and deputy director. She first began her career at NerdWallet as a journalist, covering small businesses. Prior to that, she wrote about business and startups at The Dallas Morning News, and was previously a business writer for 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 out many forms of debt that are overwhelming with the help of the federal court. You may have to sell some of your assets, such as a costly vehicle or jewelry, however, the vast majority of filers 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 such as medical bills, credit card debt and personal loans. However, some forms of debt, like tax owed, court judgments, alimony and child support, as well as student loans generally don't 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. Even so, you'll probably notice your credit scores begin to recover in the months after you file.
Read on to learn about how you can qualify for Chapter 7 bankruptcy, how to file, whether this debt relief option is the right one for you, and how to get back on track after bankruptcy.
Are you eligible for Chapter 7 bankruptcy?
To qualify for Chapter 7 bankruptcy you:
Must pass the , which examines your earnings assets, expenses and income.
It is not possible to have completed a Chapter 7 in the or within the last six years.
Do not have to have filed bankruptcy papers (Chapter 7, 13) within the last 180 days, and it was dismissed because you failed to attend court or adhere to order of the courts, or have voluntarily withdrawn your own bankruptcy filing due to creditors seeking court relief to reclaim their property that they were able to levy on.
How do you apply for Chapter 7 bankruptcy?
It is possible to complete the process within six months. It is necessary to follow several steps.
You must attend pre-filing bankruptcy counseling from a qualified non-profit credit counseling agency within 180 days of making the filing.
Before diving into the various documents required to complete Chapter 7, find a certified bankruptcy attorney who can assist. It's difficult to know when you need to get rid of debt and this isn't an issue you can tackle yourself. Incorrectly or incompletely filled out paperwork could result in your case being thrown out or having some debts eliminated.
File paperwork The attorney you hire will assist in filing your petition and other paperwork. It's your responsibility to gather all necessary evidence of the assets you have, your income and financial obligations. An automatic stay goes into effect at this point and means that the majority of creditors can't sue you, garnish your wages or call you to demand payment.
Trustee assumes the responsibility: After your petition is filed, the bankruptcy trustee appointed by the court will take over the management of the bankruptcy process.
Meeting of creditors The trustee will schedule a meeting between you, your lawyer along with your lenders. You'll have to answer any questions brought up by the trustee as well as creditors about your bankruptcy forms and financial situation.
Your eligibility will be determined After reviewing your application, the trustee will confirm whether you're eligible for Chapter 7.
Property that is not exempt from taxation handled by the trustee decides if assets that aren't exempt from selling and the proceeds are then distributed to creditors. It could include jewelry, or the equity in your home or car if it's higher than the state's exemption limits. The majority of individuals Chapter 7 cases, however they are "no asset" situations where there are no nonexempt items to liquidate.
Secured debts: To resolve your secured debts, the property that is used as collateral could be return to your creditor. Or you may be able to either redeem the collateral (you pay the debtor what you think it's worth) or renew the credit (arrange to keep the debt out from bankruptcy, and continue to repay it).
Education course: Before your case is discharged, you'll be required to attend a financial education course at a reputable non-profit credit counseling agency.
Discharge In the three to six months after filing your petition, your case will be discharged, meaning that any debts that are eligible are paid. Then, shortly after, the case is closed.
Is Chapter 7 bankruptcy right for you?
Make sure you know the difference between Chapter 7 makes sense in the following situations:
You don't have a lot of assets.
Your debts that are causing problems total more than 50% of your annual income.
The debts you are struggling with could be wiped out, or forgiven, by Chapter 7. This can include things like medical bills, credit card debt and personal and payday loans.
It could require five or more years to repay your debts even if you take extreme measures.
Certain types of debt aren't removed in bankruptcy, like recent tax bills or child support, as well as student loans. Bankruptcy still may be an option though, if erasing other types of debt could make enough money available to pay off the debts that cannot be eliminated.
The other common form of consumer bankruptcy, Chapter 13, may be more appropriate if you have higher assets and secured debts, and you are able to pay some or all you have to pay.
are available, too, such as the debt management program offered by an agency. You can also take advantage of the initial free advice credit counselors and many bankruptcy attorneys offer before deciding to take a decision.
Rebuilding after bankruptcy
Your financial life -- particularly your credit score -requires some care after , but having many debts remediated is a good starting point.
Take two steps to :
Create a financial plan Create an annual budget, establish financial goals, and think about using the free assistance of a nonprofit credit counselor to help you along the route.
Restore your credit: Make all payments on time, maintain your balances on credit low, and .
Frequently asked questions Will filing for bankruptcy damage my credit?
If you're about to file bankruptcy, your credit files likely have a few dings from discharged or late-paying accounts. After a bankruptcy discharge, however your credit score is likely to improve within six months.
What about filing for bankruptcy on my own?
You must consult with an attorney prior to applying for bankruptcy. This is because there are numerous moving parts, and one small error in a clerical record could result in your case being dismissed.
How long will the process take for filing bankruptcy?
There are a variety of steps to take in filing bankruptcy however with the assistance of a qualified bankruptcy lawyer you will be able to complete the process in just six months.
Do bankruptcy filings ruin my credit?
When you're ready to file bankruptcy, you'll find that your credit files may have a few scratches from discharged or late-paying accounts. Following a bankruptcy discharge however, your credit scores are expected to improve within six months.
How do I file for bankruptcy on my own?
It is recommended to hire an attorney when filing for bankruptcy. This is because there are numerous moving parts, and one small error in a clerical record could lead to your case being dismissed.
How long does it take to file bankruptcy?
There are many steps involved when filing for bankruptcy and, with the help of a certified bankruptcy lawyer you should be able to finish the process in just six months.
The author's bio: Sean Pyles is the executive producer and host of NerdWallet's Smart Money podcast. His writing has appeared in The New York Times, USA Today and elsewhere.
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