How to File for Chapter 7 Bankruptcy

In 2005, the bankruptcy code was changed to make it more difficult for debtors to discharge their debts. There are various chapters in the bankruptcy code that apply to certain situations and debtors, but a Chapter 7 bankruptcy is a liquidation of the debtor’s estate, a sale of nonexempt assets, and the discharge of unsecured debt. It also stops all civil proceedings, such as wage garnishments and any other collection procedures.


Before any consumer can file a Chapter 7 petition, he or she must meet a “means test.”


Your attorney has to determine if your income is above your state’s median income. If so, your monthly expenses are deducted from your monthly income to calculate your disposable income, or any income remaining that could pay creditors. If your disposable income is more than a certain amount, you can only file a Chapter 13.


Once you do qualify, here are the things you have to do to file your Chapter 7 petition:


1. Take a mandatory credit counseling class. Many bankruptcy attorneys offer this class or can steer you towards one. There is a small fee but in some cases it can be waived if you are indigent or experiencing a financial hardship.

2. List your current assets and liabilities. These include income, unexpired leases, executory contracts, and your exempt assets. Your attorney will explain this to you, but it includes furniture, clothing, vehicles, retirement accounts, tools of your trade, and others. Your home’s equity is exempt to a certain amount, which varies depending on your state.

3. Attend a First Meeting of Creditors (Section 341 meeting) with your attorney. This is usually a very short, perfunctory meeting with the trustee who will ask you some basic questions about your petition and property. Creditors may attend and question you about any secured property you have and if you wish to retain it or not.

4. Within 45 days of the 341 meeting, you will have to compete a post-filing financial management instruction course, which costs around $30.

5. Wait to see if any objections are filed, which must be done within 60 days after your 341 or First Meeting of Creditors. Objections are only filed if there is a suspicion of fraud or if they contend that their debt is secured and not unsecured. The trustee can also object if he or she suspects you were untruthful in your petition, usually regarding a failure to list all your assets or if there is fraudulent or voidable transfer.

6. If no objections are filed within 60 days of your 341 meeting, you will be granted a discharge shortly.

There are debts that are not dischargeable. Here is a short list:

• Most past due income taxes

• Student loans unless you can demonstrate “undue hardship.”

• Secured loans

• Child support arrearages

• Spousal maintenance

• Debt for personal injury if caused by intoxicated driving

• Debt for a willful and wanton act that led to personal injury

• Loans from a government entity

• Debt for court-ordered criminal restitution to a victim, including court fees

• Debt for property that was acquired fraudulently, such as maximizing a credit card or taking out large cash advances within 90 days of filing