A Chapter 7 bankruptcy filing, also known as "straight bankruptcy," is the most common of bankruptcy filings for people with large amounts of unsecured debt. By filing a Chapter 7 petition, a debtor asks the courts to provide relief from creditors.
Although it is not advisable to file a petition without the help of an attorney, it can be done. But if you do file yourself, which is called representation "in pro per," do so very carefully because new bankruptcy laws go into effect as of October 2005.
The new legislation makes qualifying for relief more stringent by taking away credit card debt protection and requiring individuals to pay for credit counseling.
Timing and accuracy is very critical at every juncture and a qualified attorney can make a world of difference. If something is not filed on time, or if something is omitted, the courts may not grant a discharge.
Chapter 7 bankruptcy usually takes four to six months from start to finish .Within this time frame, there are some requirements that must be met.
First, a voluntary bankruptcy petition form must be filled out and filed with the court, along with a schedule of assets and liabilities and a statement of financial affairs.
The petition immediately prohibits creditors from filing new lawsuits or continuing lawsuits already initiated and it stops foreclosure proceedings and wage garnishments. It also stops creditors from even calling you. This is called an automatic stay.
Once filed, a court appointed trustee is assigned to the case. The trustee examines the petition very carefully and is required to make sure it is filled out accurately and checked for fraud and or abuse of the bankruptcy system.
If there is abuse, the trustee may dismiss the petition. If there is sufficient income to pay unsecured debt, the trustee may not allow the Chapter 7 but may allow you to change to a Chapter 13 bankruptcy.
After reviewing your case and no abuse or fraud is noted, the trustee will then set up a meeting with you and your creditors. You must attend you will be required to answer any questions the trustee deems necessary concerning your income and your assets and liabilities.
Normally, you will be able to keep properties that the state classifies as exempt but all non exempt property must be turned over to the trustee and the trustee must sell it.
All proceeds from the sale are then paid to the creditors. Secured loans are paid first and if any money is left, unsecured creditors are paid.
If you still have a mortgage on the house or if there are still payments owed on the car, you will be allowed to give them back and will not be held liable for a deficiency balance.
However, if you decide to keep the house or the car, and you default on the payments after the bankruptcy has been discharged, the creditor can foreclose on the house or repossess the car. It will be your responsibility to keep all payments current.
After the meeting between the debtor and the creditors, the trustee is required to file a final report.
Then you will receive a notice of the discharge hearing and at that time you should be discharged of all debts that were not secured or exempt.
At this time, the Chapter 7 is complete.
Note: Recent changes in bankruptcy laws have been instituted so it is advisable to contact an attorney if you plan to file.