The Chapter 7 Bankruptcy Process

Want an outline of the steps involved in Chapter 7 bankruptcy? Here's how the process works.

By , Attorney · University of the Pacific McGeorge School of Law

Most people breeze through Chapter 7 bankruptcy without a problem, and knowing what to expect will help you do the same. We provide details below while answering many common questions, including the following:

  • What is Chapter 7 bankruptcy?
  • Is filing for Chapter 7 bankruptcy a good idea?
  • What is the debt limit for Chapter 7 bankruptcy?
  • What debts can be erased or forgiven under Chapter 7 bankruptcy?
  • Who can file for Chapter 7 bankruptcy?

You'll also find an explanation of the Chapter 7 bankruptcy process, including the steps you'll take in Chapter 7. For instance, you'll learn that you'll need to take a credit counseling course, complete and file bankruptcy paperwork, attend the 341 Meeting of Creditors, and complete the debtor's education course.

What Is Chapter 7 Bankruptcy?

Bankruptcy laws help people struggling financially by eliminating debt, reducing payments, and establishing payment plans. Chapter 7 bankruptcy is a "liquidation" bankruptcy that eliminates many debt types without requiring filers to pay creditors through an extended repayment plan.

However, not everyone is entitled to a Chapter 7 "discharge" erasing qualifying debts. You must meet specific requirements, the biggest hurdle being that your income can't exceed your state's median income for your family's size.

Is Chapter 7 Bankruptcy a Good Idea?

The most significant downside to filing for bankruptcy is that bankruptcy will impact your credit negatively for a few years after you file. Even so, many find filing for Chapter 7 bankruptcy a good idea after balancing the potential credit hit against the benefit of wiping out debt. And most people who can't afford to pay debts can repair their credit faster by filing for Chapter 7.

Questions to Ask When Determining If Chapter 7 Bankruptcy Is Worthwhile

In addition to analyzing how Chapter 7 will affect your credit score, you'll find evaluating two other questions helpful when considering whether Chapter 7 is suitable for you:

  • Can I keep my property?
  • Will I be able to erase my debt?

Knowing the answers to these questions will help you decide whether filing for Chapter 7 will help solve your financial problems and give you the fresh start you deserve.

Can I Keep My Property in Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy works well for people who don't own extravagant, luxurious, or nonessential property. Why? Because while you can keep or "exempt" the things essential to maintaining a home and employment using bankruptcy exemptions, that's about it.

You'll likely lose unnecessary property in Chapter 7, such as a boat, vacation property, or valuable collection. Learn more about what will happen to various types of property in Chapter 7 bankruptcy.

What Can Be Forgiven Under Chapter 7 Bankruptcy?

Chapter 7 bankruptcy works well for people who owe mainly credit card balances, medical bills, back rent, and other dischargeable debts. By contrast, Chapter 7 might not be a good idea if you can't erase most of your debt because it's "nondischargeable." Examples of nondischargeable debts include child support, alimony, recent tax debt, and student loans.

What Is the Debt Limit for Chapter 7 Bankruptcy?

Unlike Chapter 13, Chapter 7 bankruptcy doesn't have debt limits. You can file for Chapter 7 regardless of the amount of debt you've accumulated.

You also don't need a minimum amount of debt to file for Chapter 7. However, many lawyers won't file for you if you owe less than $10,000 of dischargeable debt. Ultimately, whether filing makes sense for you will depend on your ability to pay your debt. If it isn't feasible, you'll likely find Chapter 7 will bring much-welcomed financial relief.

Who Can File for Chapter 7 Bankruptcy?

Anyone can file for Chapter 7 bankruptcy. However, not everyone is entitled to a debt discharge erasing qualifying debt, which is why most people want to file for bankruptcy. Some of the reasons you might not be eligible for discharge include the following:

Income qualification requirements. Most people must pass the Chapter 7 means test before qualifying to receive a bankruptcy discharge. If you don't pass, you'll likely need to file for Chapter 11 or 13.

Multiple bankruptcies. Individuals who have received a debt discharge in a previous bankruptcy might not be entitled to another until a particular amount of time passes. For instance, you can file for Chapter 7 every eight years. If you previously filed for Chapter 13, you'll wait two years before qualifying for a Chapter 7 discharge.

Businesses. Although a sole proprietor can receive a discharge, most companies don't benefit from a Chapter 7 filing or don't qualify for a discharge. Learn more about small business bankruptcies.

If you don't qualify for a discharge, the Chapter 7 trustee appointed to your case will sell nonexempt property and distribute the funds to your creditors. You or the business will remain responsible for repaying debt.

How Much Does Chapter 7 Bankruptcy Cost in Time and Money?

Most Chapter 7 bankruptcy cases take about four months to complete. Your matter might stay open longer if the Chapter 7 trustee needs time to sell property, litigate an issue, or complete other administrative tasks. Most bankruptcy courts frown on a trustee leaving a case open for longer than six months to a year.

The amount you'll pay for a Chapter 7 case will depend on several factors, including the following:

  • whether you represent yourself
  • if you file an individual or business bankruptcy, and
  • going rates in your area.

Find out more details about the typical legal fees paid in Chapter 7 bankruptcy.

How Does Someone File for Chapter 7 Bankruptcy?

You'll complete the required bankruptcy forms and take a credit counseling course before filing your paperwork with your local bankruptcy court. After filing, you'll provide the trustee appointed to your case with financial documents verifying the amounts included on your forms. You'll also attend the 341 meeting of creditors, the one appearance all Chapter 7 filers must make.

Before receiving your discharge order, you'll also complete a debt management course. You'll find an explanation of each step you can expect in Chapter 7 below.

Steps in the Chapter 7 Bankruptcy Process

The process is predictable. Here's what will happen and what you'll need to do.

1. Decide whether Chapter 7 bankruptcy is right for you.

Most people prefer Chapter 7 because it's quick and doesn't involve paying anything to creditors. But bankruptcy isn't for everyone. Ensure you can eliminate or "discharge" your debt and keep or "exempt" your property. You'll also want to understand and prepare for the downsides of bankruptcy by securing housing, a bank account, and more.

2. Check your Chapter 7 bankruptcy qualification status.

Chapter 7 is for people with nothing left to pay creditors after paying monthly living expenses. To find out if you're eligible, take the Chapter 7 means test. If you don't want to do the calculations, a local bankruptcy lawyer can qualify you fast and probably won't charge for the first visit.

3. Gather your Chapter 7 financial documents.

It takes a lot of financial information to complete the Chapter 7 petition and schedules, including paycheck stubs, bank statements, tax returns, and more. If you don't know where to start, our Chapter 7 document list will help.

4. Take the credit counseling course.

You must receive credit counseling from an agency approved by the U.S. Trustee Program (the list is on their website) sometime during the six months before filing. You'll file the certificate along with your bankruptcy petition. Learn about exceptions to bankruptcy class requirements.

5. File the Chapter 7 bankruptcy paperwork.

Before completing your bankruptcy paperwork, ensure you're timing your bankruptcy filing correctly. If it's a go, you'll complete and file the completed forms along with your counseling course certificate and the bankruptcy filing fee or a request for a fee waiver. Once you file, the automatic stay will stop most creditor collection actions during your case.

6. Give your documents to the Chapter 7 bankruptcy trustee.

You'll turn over financial documents to the bankruptcy trustee appointed to administer your case. Plan to turn over paycheck stubs, bank statements, tax returns, and more at least seven days before the 341 meeting of creditors, the appearance all filers must attend. Some courts require debtors to file tax returns with the court, so check your local rules for details.

7. Attend the 341 meeting of creditors.

You'll receive a notice from the court with the time, date, and location of the meeting of creditors. At the meeting, you'll answer questions from the trustee and creditors (if any attend because they usually don't) about your identity and the information in your petition. Most filers talk to the trustee for about ten minutes.

8. File the debtor's education course.

Before receiving your discharge, you must complete a debtor's education course. Many providers will file the certificate with the court for you. If not, make sure you do so. Otherwise, you won't receive your debt discharge.

9. Wait for your debt discharge and case closure.

You'll receive your bankruptcy discharge by mail about four months after filing the case. If you're like most filers, the court will close your bankruptcy case a few days later. A Chapter 7 case will remain open longer if the trustee needs more time to sell property or if litigation remains ongoing.

10. Start rebuilding your credit.

Once you have your discharge, you'll be ready to begin living your new life. Find out what you can do to rebuild your credit after bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

You'll find fillable, downloadable bankruptcy forms on the U.S. Courts bankruptcy form webpage.

Chapters 7 and 13 Bankruptcy Form List

Bankruptcy Document Checklist

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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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