Filing for Chapter 7 bankruptcy can be a daunting process for those who are going through it for the first — and hopefully last — time. But with adequate preparation and the proper guidance of a bankruptcy attorney, you can rest assured that the process will go without unexpected surprises.
Generally, the entire Chapter 7 process — from filing to discharge — will last between three and six months. It is a much swifter affair compared to the three- to five-year timeline of Chapter 13 bankruptcy, in which debtors reorganize their debts. In a typical Chapter 7 case, you will make only one trip to the bankruptcy court, during which you’ll attest to the truthfulness and accuracy of your bankruptcy petition. The case will end shortly after you receive your discharge, and all your qualifying debts will be wiped out.
Below, we provide an instructive guide on the filing process as well as tips to help you achieve discharge.
Phase 1: Prerequisites to Chapter 7 Bankruptcy
The initial phase of any Chapter 7 bankruptcy case should be all about preparation and organization. You’ll need to gather all relevant financial documents (records of your debts, assets, etc.) in order to file your petition and so you can respond to important questions posed by either your attorney or the court.
You can find a list of the bankruptcy petition documents you’ll need to file in the section titled “Chapter 7 Bankruptcy Forms.” Be very careful not leave anything out.
Step 1. Get Credit Counseling: If you’re an individual with at least 50% consumer debt — as opposed to debts you incurred through your business, if you own one — you must complete a credit counseling course from a government-approved agency or education provider prior to filing your Chapter 7 petition (within 180 days).
Credit counselors will conduct a thorough assessment of your financial situation and help you prepare to file, often for free. Debtors with primarily business debt are not required to get counseling.
Step 2. Hire an Attorney: If credit counseling determines that bankruptcy is your best option, it’s time to get yourself a bankruptcy attorney – most of whom do not charge for an initial consultation. An experienced attorney will help you complete required forms, develop a feasible debt repayment plan, and guide you through the rest of the Chapter 7 process. That’s important because the bankruptcy court clerk's staff is prohibited from giving you legal advice, including instructions on how to complete bankruptcy forms.
We therefore strongly advise against self-representation, even if you don’t think you can afford a professional. Courts generally understand that people have legal fees to fund and don’t tend to pile on with other financial burdens. Good lawyers will probably pay for themselves, and many law firms have payment programs for low-income clients.
Step 3: Take the Means Test: This is an income-based method of assessing whether you qualify for Chapter 7 bankruptcy or if you should pursue other forms of debt relief, such as filing for Chapter 13. You will need to file your completed means test forms to the court along with your petition.
You can learn more about the process in our Bankruptcy Means Test Guide.
Step 4. Complete the Paperwork: Your bankruptcy petition will consist of a packet of forms and “schedules.” If you’re a married couple, you must complete only one set of forms with information for both you and your spouse unless you maintain separate households.
In addition, your particular court may require local forms. If you’ve hired an attorney, he or she will supply and complete the paperwork on your behalf. Be especially careful not to intentionally omit information about your finances on your bankruptcy disclosures. Doing so can delay your filing and potentially result in dismissal.
Step 5. List Your Creditors: You must prepare a creditor mailing list, or “matrix,” which will notify creditors of your bankruptcy. They, in turn, will file payment claims against your bankruptcy estate.
A bankruptcy estate includes all of the property that is liquidated. This is property in which you have a legal interest but don’t necessarily own or have in your possession. Be very thorough with this step. You must not intentionally leave out any of your creditors on your creditor mailing list. Doing so is considered perjury, or lying under oath. It is not only grounds for dismissal of your case but also an invitation for the court to impose criminal charges against you.
Phase 2: The Filing Process
The hard part is now behind you. Filing itself very little effort on your part, assuming you’ve retained the services of an attorney.
With that being said, it’s important to note that filing requires precision. So, don’t get complacent while your bankruptcy attorney does the heavy lifting. You may need to supply missing documents or information at times — so make sure you’re available and maintain regular communication with both your attorney and case trustee.
Step 1. File Your Petition: Your attorney will submit your completed forms and schedules, creditor matrix, credit counseling certificate and debt repayment plan to the bankruptcy court in your area.
At this time, you must also pay the filing fee unless you’ve completed an application to pay it by installment or you filed a motion to waive the fee. Upon filing, you will receive a case number from the court, and a bankruptcy estate will be created.
Step 2. Collection Efforts Cease: Immediately after submitting your petition, an Automatic Stay Order will stop most collection efforts directed at you and your property.
Keep in mind that not all collection attempts (e.g., paternity lawsuits or collections of nondischargeable tax debt) are stopped. Other actions are only temporarily ceased, depending on whether you’ve previously filed another bankruptcy case or a creditor has requested relief from the automatic stay.
WalletHub's Automatic Stay guide covers information about this injunction in greater detail.
Step 3. Court Takes Over: By filing for Chapter 7 bankruptcy, you relinquish control of your property and debts to the bankruptcy court. Upon filing, the U.S. Trustee Program will appoint a bankruptcy case trustee to administer your case. Please note that the U.S. Trustee Program and the bankruptcy case trustee are two separate entities with distinct roles.
Your case trustee’s responsibilities will be more hands-on and will include reviewing your bankruptcy disclosures, collecting certain financial documents from you, conducting your meeting of creditors (discussed more in the next section), liquidating your nonexempt assets and distributing the proceeds to your creditors.
You can learn about exempt and nonexempt assets in WalletHub’s Bankruptcy Exemptions Guide.
Phase 3: Post-Filing & Discharge
The final stage of the bankruptcy filing process begins soon after you submit your petition and pay the bankruptcy court. Nevertheless, you are still months away from discharge at this point, so it’s crucial that you heed all orders from the court, your attorney and case trustee in the meantime so as not to imperil your case.
Step 1. Contact Your Trustee: A few days after filing your petition, you will receive a “Notice of Filing” from the court. The notice will detail the name and contact information of the case trustee that was appointed to oversee your case and estate. You’ll need to schedule a meeting with them to discuss your case. Failure to cooperate with your trustee can result in dismissal of your case.
Step 2. Furnish Your Financial Documents: You will need to provide your case trustee with copies of your pay stubs as well as your tax return from the most recent year, unfiled returns from previous years, and any returns filed while your case is open no later than seven (7) days before your meeting of creditors.
Step 3. Court Announces Your Filing: Within approximately 15 days of filing your petition, your bankruptcy trustee will send a “Notice of Chapter 7 Bankruptcy Case” to you and all of the creditors listed on your matrix.
Step 4. Attend Your Meeting of Creditors (341 Hearing): Between 21 and 40 days after filing your petition, the court will notify you of the date and location of your meeting of creditors. During this mandatory hearing, you will respond under oath to questions posed by your creditors and trustee about your finances and petition disclosures. If you lie or fail to attend, your case will be dismissed and none of your debt will be discharged.
In most cases, creditors do not attend the meeting (judges are prohibited from attending), and the whole process lasts only a few minutes. In a joint case, both you and your spouse must appear. Your creditors will have 60 days to respond with challenges. If any documents are missing or any questions are not adequately addressed, a second meeting of creditors may ensue.
Step 5. Court Determines Presence of Abuse: Within 10 days after the meeting of creditors, your case trustee will report to the court whether your case is presumed to be “abusive” under the means test. Do not be alarmed by the phrasing here. More often than not, an abusive case simply means your disposable income is too high for Chapter 7 and that you qualify instead for Chapter 13.
Abuse is presumed if your disposable income (aggregate current monthly income over five (5) years, less allowable expenses and total secured debts) is either: A) more than $12,475; or B) at least 25% of your nonpriority unsecured debt, as long as that amount is at least $7,025. More details about this can be found on WalletHub’s Bankruptcy Means Test guide.
Step 6. Complete a Financial Management Course: This session will cover different subjects and last longer than the credit counseling course you took before filing. Once you’ve finished the session, you will receive a certificate stating that you have met the requirement. You must complete this step and file your certificate in court prior to discharge. Otherwise, your case will be dismissed and none of your debt will be wiped out.
Step 7. Judge Orders Discharge: Within 60 to 90 days after the first meeting of creditors, the judge will order a discharge and send a “Discharge of Debtor” notice to you and your creditors — unless an interested party (e.g., one of your creditors) files a complaint objecting to the discharge. In such cases, your attorney might need to defend you in court against the objection. Upon discharge, all qualifying debts will be wiped out.
Chapter 7 Bankruptcy Forms
Much of the paperwork you’ll need to file for Chapter 7 bankruptcy can be obtained directly from the U.S. Courts. Your local bankruptcy court may also require local paperwork, which you can obtain from the court or from your bankruptcy attorney.
In addition, you will need to file a creditor mailing list/matrix, credit counseling certificate, any debt repayment plan you developed through counseling, and copies of pay stubs or other evidence of payment you received from your employer within 60 days of filing your petition.
The official bankruptcy forms on the U.S. Courts website will be divided into two groups:
- Part I - Official Forms, Instructions, and Committee Notes: All required lists, schedules, statements and fees for Chapter 7 can be found on page 1 of Procedural Form B200. The rest of this section contains those forms, but you will need only the ones that pertain to your particular circumstances. The most common forms used in Chapter 7 are listed in the table below.
- Part II - Procedural Forms and Instructions: These are the forms you’ll need after submitting your petition. Some of the forms here may be used by your creditors or ordered for use by the bankruptcy court.
Tips on Successfully Filing for Chapter 7 Bankruptcy
When filing your petition, there are several important measures to keep in mind that will help you successfully achieve discharge. Consider the following:
- Honesty Is the Best Policy: You want to be absolutely transparent to every party involved in your bankruptcy case, including your credit counselor, your attorney, your case trustee and, most importantly, the court. We cannot stress enough the importance of reporting all of your income, assets, debts and expenses in your petition disclosures.Falsifying information will get you in trouble with the law, which will require even more of your time and money. So do your best not to omit, conceal or misrepresent information about your finances.
- Put Your Best Foot Forward: Bankruptcy court rules are strict. You must not miss any deadlines, especially for filing your petition and paying the applicable fees. A misstep as simple as filing the wrong paperwork — and filing late — can have serious consequences, including dismissal of your case.So do everyone a favor and make sure you’ve collected all the necessary documents that pertain to your case prior to arranging any meetings with a credit counselor, your attorney or your case trustee. The more prepared and punctual you are, the more smoothly your case is likely to go.
- Find the Right Court: Chapter 7 debtors, especially those who self-represent, frequently file their petitions at the wrong courthouse, which is a major blunder to make at the beginning of the process. You need to file your bankruptcy petition in the federal (not state) bankruptcy court in the area where you lived, maintained your principle place of business or stored your primary assets for the majority of the 180 days prior to filing.If you moved across state lines during that time period and lived the majority of the time in your new state, the court may still require you to use your former state’s procedures. Ask for guidance from your attorney in this case.
- Perfect Timing: Many debtors file for bankruptcy in haste when they feel their finances are about to collapse, which can often lead to a dismissed case.In bankruptcy, there is a right and wrong time to file. Follow these guidelines to make sure you don’t fall into the same trap:
- If you don’t know the full extent of your financial problems, speak with acredit counselor These professionals can help you find less abrasive courses of action.
- If you anticipate receiving an income tax refund or acquiring a nonexempt asset, fileafter consuming the refund or asset. Otherwise, your trustee will liquidate the nonexempt portion of the refund or asset when you surrender it.
- If you anticipate acquiring nonexempt assets or funds from an inheritance, life insurance or divorce settlementwithin 180 days after filing your case, wait to file for Chapter 7, or you’ll lose the property or money to your bankruptcy estate.
- If you received a prior discharge under Chapter 7 at least 4 years ago and are considering filing a new case, file Chapter 13 instead. Filing Chapter 13 after Chapter 7 is known as “Chapter 20” bankruptcy.
Image: Nomad_Soul/Shutterstock
