By now, you’re probably well aware of the benefits of bankruptcy. And if you’ve been struggling with unmanageable debt for a while, you may be seriously considering pursuing debt discharge through Chapter 7. But what how does it work, and what can you do to prepare your case? Below, we discuss how to file bankruptcy Chapter 7 and what you can expect during each step of the process.
Analyze Your Debts
While Chapter 7 is a great way to discharge certain kinds of debts, it’s important to be aware of what it can and cannot discharge. If your debt is primarily mortgage or car payments, Chapter 7 can eliminate those debts but you will lose the property that the debt secures. Additionally, child support payments, student loan debt, and some tax debt are not dischargeable in Chapter 7. An experienced Dallas bankruptcy attorney at Allmand Law Firm PLLC can help you analyze your debts and advise you as to your best steps moving forward.
Assess Your Exemptions
Chapter 7 bankruptcy repays your creditors by liquidating your non-exempt assets. So if you have valuable property you want to keep, you will need to consider whether or not it will become part of the liquidation process. Typically, you will be able to retain your car, retirement accounts, and household items. In Texas, you can exempt a considerable amount of money in overall property value.
Determine Your Eligibility
Not everyone is eligible to file under Chapter 7. In order to qualify, you must pass the means test. That means that you will want to figure out whether your income is at or below the state median (which is adjusted periodically). If you’re below the state median, you automatically qualify for Chapter 7.
If you earn more than the state median, you will have to calculate the difference between your income and expenses to determine your eligibility. You must present to the court an itemized list of all of your debts and income to show that paying off your debts is not financially possible. A bankruptcy attorney can help you with this process.
Redeem or Reaffirm Secured Debts
You can discharge delinquency fees and late fees in Chapter 7, but you’ll have to reaffirm your secured debts such as your mortgage or your car loan if you plan on keeping them. You have three options:
- Redeem the property in a lump sum that pays off the entire existing balance.
- Reaffirm the debt by continuing to pay as per the loan agreement.
- Surrender the property (but you wouldn’t owe any more money on it).
File the Petition
You will need to take a credit counseling course directly before filing for bankruptcy. After completion of this course, you can then file your Chapter 7 bankruptcy forms. This process marks the official beginning of your bankruptcy. While most file all the forms at once, others make an emergency filing completing some of the forms. This is so that the automatic stay goes into effect sooner.
Once you have all of your ducks in a row, you can begin the process of filing a petition. You will be required to fill out forms that list your property, debts, income, monthly expenses, property exemptions. You will also need to decide on how you want to handle your secured debts and disclose any property transactions that occurred up to ten years prior to your bankruptcy case.
Pay the Filing Fee
You’ll need to pay a filing fee when you submit the forms to the bankruptcy court. If you cannot pay all at once, you can make payments in four installments. If you can’t pay at all, you can apply for a fee waiver by filing out yet another form. However, the fee waiver is generally only granted in cases where your household income is within 150% of federal poverty guidelines.
Submit Documents to Your Bankruptcy Trustee
During your bankruptcy, the trustee will request documents that prove your debts and income. This can include bank statements, pay stubs, tax returns, and just about anything else that the trustee requests.
Attend a Creditors Meeting
After the trustee reviews your documents and verifies the accuracy of your claims, you will go to a meeting with the bankruptcy trustee and your creditors. In most cases, creditors will not bother to attend the meeting. The trustee will ask you a series of basic questions, confirm which debts you want discharged in bankruptcy, and your creditors will also have a chance to speak, if they wish.
Complete a Debtor Education Course
Once you are done filing your paperwork, you will complete a debtor education course.
Receive a Discharge
If your petition is successful, the court will discharge your debts. Typically, this occurs within 4 to 6 months of filing.
Learn More About How to File Bankruptcy Chapter 7
If you are struggling with debt, Allmand Law Firm PLLC can help. To learn more about how to file bankruptcy Chapter 7 and how to get on the road to financial freedom, contact us today.