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Chapter 7 Bankruptcy: What is It is and how to file

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Chapter 7 Bankruptcy: What It is and How to File

Chapter 7 can wipe out the debt that is overwhelming, with some notable exceptions such as student loans.

by Sean Pyles Senior Writer | Personal finance and credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of the NerdWallet’s «Smart Money» podcast. In «Smart Money,» Sean talks with Nerds from the NerdWallet Content team to answer listeners’ personal finance questions. With a focus on shrewd and practical money tips, Sean provides real-world guidance that can help consumers better the financial situation of their lives. In addition to answering listeners’ financial questions on «Smart Money» Sean also interviews guests outside of NerdWallet and creates special segments to explore topics such as the racial gap in wealth, how to start investing and the history for student loans.

Before Sean lead podcasting for NerdWallet, he covered topics related to consumer debt. His writing has been featured in USA Today, The New York Times and elsewhere. When when he’s not writing about personal finances, Sean can be found digging around the garden, taking runs and taking his dog for long walks. Sean is located at Ocean Shores, Washington.

Aug 6 Aug 6, 2021

Written by Hanah Cho. Cho is Vice President Personal finance Hanah Cho is Vice President of Content. She led multiple NerdWallet teams that were focused on personal finance prior to being promoted to deputy director and then director. She first was hired by NerdWallet as a journalist, covering small businesses. Before that, she covered startups and business at The Dallas Morning News, as well as a prior Business writer at The Baltimore Sun. She was also treasurer of the Texas Chapter of the Asian American Journalists Association.

Many or all of the products we feature are from our partners, who pay us. This impacts the types of products we write about and where and how the product is featured on the page. But, it doesn’t affect our opinions. Our opinions are our own. Here’s a list and .

Table of Contents

Table of Contents

Chapter 7 bankruptcy can wipe away a myriad of forms of overwhelming debt under the protection of a federal court. It is possible to surrender some assets, like an expensive automobile or jewellery, but the vast majority of people who file bankruptcy do not. Chapter 7 bankruptcy is the most efficient and popular type of bankruptcy.

Chapter 7 bankruptcy erases most unsecured debts, that is, debts that don’t have collateral such as medical bills, credit card debt, and personal loans. However, some forms of debt, like back taxes, court judgements, alimony and child support, and student loans generally do not qualify for. Chapter 7 bankruptcy will leave an indelible impact on your credit reports for a period of 10 years. You’ll have a harder time obtaining credit. But, you’ll see your credit scores start to improve in the time after you apply.

Read on to learn about how you can qualify in Chapter 7 bankruptcy, how to file, whether the debt-relief option the right one for you, as well as how to get back on track following bankruptcy.

Are you eligible to file Chapter 7 bankruptcy?

To qualify for Chapter 7 bankruptcy you:

Must pass the , which looks at your income expenses, assets, and income.

Could not have completed Chapter 7 Chapter 7 in the or a within the past six years.

Do not have to have filed a bankruptcy petition (Chapter 7, 13) in the previous 180 days. The petition was dismissed due to your failure to attend court or comply with the court’s orders or voluntarily dismissed your own filing as creditors requested court relief to recover assets they had a lien on.

How do you do you file Chapter 7 bankruptcy?

You can probably complete the process in just six months. You’ll have to follow several steps.

You must attend pre-filing bankruptcy counseling from a reputable non-profit credit counseling service within 180 days of making the filing.

Before diving into the various forms needed to file Chapter 7, find a certified bankruptcy attorney who can assist. It’s hard to when you need debt relief however, this isn’t a DIY situation. Missing or improperly completed paperwork could lead to the case being dismissed or having some debts dismissed.

File paperwork Your lawyer will assist with the filing of your petition and other documents. However, it is your responsibility to gather all relevant documentation of the assets you have, your income and financial obligations. A stay of automatic in effect at this point, meaning that most creditors are unable to pursue you, garnish your wages or call you to demand payment.

Trustee takes over: Once the petition has been filed, the bankruptcy trustee appointed by the court will start managing the process.

Meeting of creditors The trustee will schedule a meeting between you, your lawyer, and creditors. You’ll need to respond to concerns from trustees and creditors about your bankruptcy forms and financial situation.

Your eligibility will be determined After reviewing your paperwork The trustee will determine your eligibility for Chapter 7.

Non-exempt property is handled: The trustee determines whether assets that aren’t exempt are worth selling so proceeds can go to creditors. The property that is exempt can be jewelry, or the equity in your house or vehicle, if it’s more than the state’s exemption limits. The majority of individuals Chapter 7 cases, however they’re «no asset» instances where there’s no nonexempt items to liquidate.

Secured debts: To resolve your secured debts, the property which is collateralized could be ordered to be returned to the creditor. It is also possible to redeem the collateral (you pay the debtor what it is worth today) or reaffirm the debt (arrange to keep the debt out from bankruptcy and continue to repay it).

Education course: Before your case is discharged, you’ll have to take a financial education course from a qualified credit counseling organization that is non-profit.

Discharge 3 to 6 months after you file your petition your case will be discharged. This means that debts eligible for forgiveness are repaid. Shortly thereafter the case is closed.

Are you sure? Chapter 7 bankruptcy right for you?

Make sure you know the distinction between Chapter 7 and Chapter 7. It is logical when:

There aren’t many assets for you.

Your problem debts total more than 50% of your annual income.

Your problem debts can be discharged or forgiven by Chapter 7. These include , for example, medical bills as well as credit card debt. personal and payday loans.

It could take five years or more to repay your debts even if you had taken extreme measures.

Certain types of debts can’t be removed in bankruptcy, like recent taxes as well as child support and student loans. It’s still an option for you though, if erasing other kinds of debt would make enough money available to pay off the debts that can’t be erased.

The second most common type of consumer bankruptcy, Chapter 13, may be better if you have more assets or secured debts, and you can pay back a portion or all of what you owe.

are available, too, such as an option to manage debt through an agency. Benefit from the initial free advice credit counselors and many bankruptcy attorneys offer before deciding to take a decision.

Rebuilding after bankruptcy

Your financial health — and particularly your credit -is likely to require some attention when you are done, but having lots of debts resolved gives you an excellent start.

Take two steps to :

Create a financial plan Create a budget, create financial goals, and think about using the free assistance of a credit counselor who is non-profit to assist you on your route.

Restore your credit: Make all payments in time, and keep your balances on credit low, and .

Most frequently asked questions Can bankruptcy damage my credit?

By the time you’re ready to file for bankruptcy, your credit file may have a few scratches due to late payments or dissolved accounts. Following a bankruptcy discharge however your credit score is likely to rise within the next six months.

What about filing for bankruptcy on my own?

You should hire an attorney when you file for bankruptcy. It is because bankruptcy has numerous moving parts, and one tiny clerical mistake could cause your case to be dismissed.

How long does it take to file bankruptcy?

There are many steps when you file for bankruptcy and, with the help of a qualified bankruptcy attorney you should be able to complete the process in six months.

Do bankruptcy filings ruin my credit score?

By the time you’re ready to file for bankruptcy, your credit reports may have a few dings from late payments or discharged accounts. After bankruptcy, however, your credit scores are expected to rebound within six months.

How do I file for bankruptcy on my own?

It is recommended that you seek the advice of an attorney before you are filing bankruptcy. This is because there are many moving parts and one small clerical error can result in your case being dismissed.

How long will the process take for filing for bankruptcy?

There are many steps involved when you file for bankruptcy and, with the help of a bankruptcy attorney who is experienced, you will be able to complete the process in six months.

About the author: Sean Pyles is the host and executive producer of the NerdWallet’s Smart Money podcast. His writing has appeared in The New York Times, USA Today and elsewhere.

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