Congress long ago enacted the Chapter 7 bankruptcy law to allow people who are facing significant debt protect their basic property and set up a process to liquidate any unprotected assets in order to pay back their creditors. Once you file a case, a attorney appointed by the U.S. Department of Justice called a bankruptcy trustee will administer your case and the Trustee will be responsible to liquidate or sell your assets that are non-exempt and distribute the proceeds among the parties you owe a debt.
One thing about Bankruptcy Law Chapter 7 is most people who qualify under it have few or no valuable assets that can be liquidated. As an example, if the equity of a house in Massachusetts is less then $500,000, then the owners can keep it.
Whether or not you have assets that are worth liquidating, all of your unsecured, non-priority debt may be erased or discharged through the law of Chapter 7 Bankruptcy. This type of debt includes credit cards, medical bills and personal loans. However, not all your financial obligations can be discharged such as student loans, family support, income taxes less than 3 years old and criminal fines, are considered priority.
In order to qualify to file a Chapter 7 case, an individual, married couple or a business organization must meet the following criteria:
- You have not received a bankruptcy discharge in the last 8 years;
- You do not have a Chapter 7 petition dismissed within the last 180 days;
- You have not incurred a debt through fraud; and
- Your income is equal or below the median income in your state.
If you are qualified to file under Bankruptcy Law Chapter 7, the first thing you are required to do is to complete a credit counseling session with an agency certified by the United States Trustee.
After counseling comes the paperwork. You will need to fill out official bankruptcy forms and prepare other documents required for filing under Chapter 7 bankruptcy laws, including a detailed statement of your income and expense statements, a list of your assets and liabilities, current tax returns and a copy of your credit counseling certificate, and proof of your paystubs for the last 6 months.
Once you have filed your petition at your local bankruptcy court, you can expect two things to happen:
First, the Bankruptcy Law in Chapter 7 will stop any creditors from trying to collect money from you, which will even stop court ordered wage garnishments, tax liens or a scheduled foreclosure on your property.
Next, you will have to go to court to attend what is called the Section 341, Meeting of Creditors with the Trustee. This is where the Trustee will ask you questions to confirm everything you put on your documents is true and accurate.
Finally after your 341 Meeting, you will need to complete a financial management course online or on the phone and file a certificate of completion with the Court. Once that happens, you will receive a discharge of all of your unsecured, non-priority debt and can get a fresh start on your finances.
The process of interpreting the chapter 7 law can be complex and a record will remain on your credit report for 10 years, so you do want to consult with an experienced bankruptcy lawyer licensed in your state before making the decision and for help guiding you through the process.