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Steps of a chapter 7 bankruptcy

Chapter 7 typically lasts 6 months. Learn what to expect at each stage, from filing the petition to receiving the discharge.

Whether you're planning to move forward with a bankruptcy filing or you're just beginning to contemplate your options, it's important to understand each step of the chapter 7 bankruptcy timeline. Learn how the chapter 7 bankruptcy process works, from preparing and filing to the overall impact on your credit.

Chapter 7 bankruptcy basics

Chapter 7, known as straight bankruptcy, is one of the most common kinds of bankruptcy. With this type of structure, your assets are liquidated and used to pay off your debts. Once your assets are gone, you no longer have responsibility for most of your debts. The primary figures in a bankruptcy case include:

  • Debtor: This is the person filing for bankruptcy.

  • Trustee: This person or organization take over the debtor's nonexempt assets and uses them to pay off accumulated debts.

  • Creditors: The debtor owes an amount of money to these people or organizations. Once the bankruptcy proceedings take place, the trustee pays off the creditors by liquidating the debtor's assets.

How to prepare to file for bankruptcy

You'll need to complete a number of files and gather extensive information in order to file for chapter 7 bankruptcy. The required information may change depending on your financial situation, but you'll typically need to acknowledge:

  • Property you own
  • Income
  • Living expenses
  • Debts
  • Tax returns for the previous 2 years

Chapter 7 bankruptcy filing process

Overall, filing for chapter 7 bankruptcy takes about 4 to 6 months. The basic steps in the chapter 7 bankruptcy timeline include:

  1. Credit counseling: Before filing for bankruptcy, all creditors must complete a credit counseling course. This typically takes place within 6 months of filing.

  2. Petition: When you file for chapter 7 bankruptcy, you'll need to submit a petition, along with numerous other financial documents.

  3. Automatic stay: As soon as you file for bankruptcy, an automatic stay prevents most creditors from collecting on your debts.

  4. Trustee: The court determines a trustee who will liquidate your assets and pay off your creditors as appropriate.

  5. Creditors: Along with your trustee, you'll meet with creditors to answer any questions about your debts or finances.

  6. Eligibility: The court will determine whether you're eligible to file for chapter 7 bankruptcy.

  7. Secured debts: Debts that you obtained by pledging collateral aren't automatically liquidated, so you'll need to decide how to handle them. You may be able to surrender or continue paying on secured debts.

  8. Financial management: All debtors are required to complete a financial management course prior to discharge.

  9. Discharge: About six months after your initial filing, the court grants your discharge. The automatic stay ends at this point, but creditors still aren't able to collect on discharged debts.

  10. Closure: Once all of these steps are complete, the court closes your bankruptcy case.

What happens if your case is dismissed

After you've gone through the filing process, there's a chance the court could dismiss your chapter 7 bankruptcy case. Some of the most common reasons for dismissal include:

  • Excessive income: If your income is deemed to be too high based on state and local averages, your case will be dismissed or you'll be asked to consider filing for a different type of bankruptcy.

  • Incomplete credit counseling: All debtors are required to complete credit counseling before filing for bankruptcy. If you file before receiving your certificate of completion, your case will be dismissed.

  • Insufficient documents: You'll need to disclose all of your financial information and complete a series of forms in order to file for bankruptcy. Neglecting one or more forms will result in the court dismissing your case.

  • Fee nonpayment: All bankruptcy cases require filing fees, and failing to pay typically results in dismissal.

  • Fraud: If you don't disclose your financial affairs completely and accurately, you could be charged with fraud, which can result in a dismissed case as well as criminal charges.

Just because your case is dismissed doesn't mean all is lost. If your case is dismissed without prejudice, there's nothing stopping you from fixing the problems and refiling at your earliest convenience. If don't follow court orders or take advantage of the bankruptcy process in some way, your case will likely be dismissed with prejudice, which means you'll have to wait a certain amount of time to refile.

How chapter 7 bankruptcy impacts your credit

Filing for chapter 7 bankruptcy can be a positive step forward for your financial situation, but it does have some lingering effects. After the proceedings are complete, your credit score will most likely drop by at least 100 points, a decrease that typically takes several years to repair. Even once you've begun to repair your credit, bankruptcy stays with you, since a chapter 7 filing remains on your credit report for a decade. After 10 years have passed, you'll finally see it drop off your credit report.

How a lawyer can help your bankruptcy case

It's possible to file for chapter 7 bankruptcy with or without the assistance of a lawyer, but it may be risky. Only an attorney can ensure that all of your debts are disclosed properly, helping your case immediately and in the long-term. Attorneys can help you navigate the chapter 7 bankruptcy process by

  • Helping you understand your options.
  • Explaining the best type of bankruptcy for your situation.
  • Filing appropriate legal forms.
  • Acting as your representative for creditors.
  • Ensuring that the court hears your case.

Navigating the chapter 7 bankruptcy process can be challenging since there's so much at stake. To ensure that the process goes as smoothly as possible, don't hesitate to seek professional guidance from a bankruptcy attorney.

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