Which Rules in a Chapter 7 Filing Should I Watch For?

If you find yourself in the unfortunate position of having to file for Chapter 7, you need to be very aware of the specific Chapter 7 rules regarding your filing. The purpose of Chapter 7 bankruptcy is to give you an "order of relief" which will then result in an "automatic stay." This automatic stay will prevent your creditors from either pursuing your or your property outside the bankruptcy proceedings.  While it is possible to file your own paperwork and represent yourself in a Chapter 7 filing, the Chapter 7 rules can be specific yet complicated and you would benefit from the services of an experienced bankruptcy attorney. 

What Debts are Eligible?

You will find that while most of your debts are eligible according to the Chapter 7 rules, some of them cannot be discharged, most specifically, liens on property, delinquent child support, federal student loans and delinquent taxes. 

The Chapter 7 Bankruptcy Means Test

You will first have to take the Chapter 7 means test to determine if you have absolutely no means to pay--if you do have some available income this is intended to push you into filing Chapter 13 bankruptcy in order to ensure your creditors receive at least partial payment. The Chapter 7 Bankruptcy Means Test will compare your income to the median income in your state for a family the same size as yours to determine if you are above or below the applicable median income. If your income is higher, the second step will be triggered, which is much more complicated and basically calculates disposable income and unsecured debts with a very specific formula. In short, if your disposable income over a five year period is less than 25 percent of your unsecured, non-priority debts, you will "pass" the means test. 

How Chapter 7 Works

After you have passed the means test, you will file a petition with the bankruptcy court where you reside, along with schedules of assets and liabilities, a detailed schedule of current income and expenditures, a statement of financial affairs, a statement of your property, a copy of your tax return for the most recent year as well as tax returns filed during the case and and a schedule of contracts and unexpired leases. You will additionally file a certificate of credit counseling and a copy of your debt repayment plan as a result of credit counseling.

Costs to File Chapter 7

The courts must charge a total of $299 for filing fee, administrative fee and trustee surcharge. If you are unable to pay this fee, the court may set up installment payments for you, or if you are unable to even pay installments they may waive the fee entirely.  Somewhere between 20 and 40 days after your completed Chapter 7 petition is filed with the court, your case trustee will hold a meeting with your creditors; you must attend this meeting and answer questions regarding your financial affairs and property. While the majority of your creditors will not even show up, if they do they are allowed to question your claim that you are unable to make your payments to them. Some 60-90 days later, the courts will grant you a Chapter 7 discharge, notifying you that you are released from your personal liability for any of the discharged debt--these debtors cannot take action against you or your exempt property. Once your Chapter 7 Bankruptcy filing is complete, you should immediately begin the long process of repairing your damaged credit rating.