Although chapter 7 bankruptcy offers a relatively simple way to alleviate a crushing debt load you cannot pay, the process itself, and the paperwork it involves, can be somewhat complicated. It requires that the filer be knowledgeable to some degree; it also dictates that hiring an attorney is probably a wise thing to do. Below is a basic outline of the steps required in how to file Chapter 7 bankruptcy. Although there may be some slight variations between different states, the process is pretty similar regardless of where you live.
Keep in mind that the federal government has purposely structured bankruptcy law as a way to discourage individuals from using it unless absolutely necessary. You will be required to meet certain criteria before you can even file. Make sure you meet these criteria or your case could be summarily dismissed and your ability to file future bankruptcies jeopardized.
Hire an Attorney
Although individuals can represent themselves in the bankruptcy court without an attorney, it is highly recommended that they not attempt to do so. Paperwork is extremely detailed and complicated and must be filled out correctly the first time. Failure to do so correctly, and truthfully for that matter, will almost always result in the dismissal of your case. Depending on the errors that you made you may not be eligible to file a second petition for another 6 to 8 years.
Many people don't want to hire an attorney because it will further add to their financial burden. But when you consider the risk of doing things incorrectly, and the potential of having your case dismissed, it's worth the extra expense. Although market conditions vary, legal services for personal bankruptcy average about $300 in the United States. For $300 it's worth it to have the peace of mind that comes with sound legal counsel. You should also be aware that the court clerk's office and non-attorney legal services are prohibited by law from giving you any legal advice.
Complete Credit Counseling
Federal law mandates that individuals filing a Chapter 7 personal bankruptcy must complete a credit counseling course. That course educates consumers in debt management and financial control. A certificate of completion must be filed with your bankruptcy petition in federal court. Failure to include the certificate will invalidate your paperwork and result in dismissal of your case. Also, make sure that you receive your credit counseling from an agency that has been approved by the U.S. bankruptcy court.
Some court jurisdictions also require individuals to seek out debt settlement services before they file for personal bankruptcy. A debt settlement service is there to help individuals get their finances in order and pay off their debts. The service works with you and your creditors to establish a plan everyone can live with. If the bankruptcy court in your area requires such an effort, you may also be required to furnish proof that you unsuccessfully sought out such services before filing your bankruptcy petition.
Assess All Your Debts
Before wasting the bankruptcy court's time, be sure you and your attorney sit down and assess all of your debts. The court will not look too kindly on you should you bring a case that's not considered legitimate. You need to consider all debts, both secured and unsecured, as well as debts that cannot be discharged by law. Examples of non-dischargeable debts include student loans, mortgages, tax liens, and debts that may have been incurred as the result of illegal or fraudulent activity.
The biggest thing courts are looking at with Chapter 7 bankruptcies is the amount of unsecured debt you have. Unsecured debt is that which is not backed up by any collateral a creditor could seize in lieu of payment. The most common example of unsecured debt is the common credit card. Other examples include healthcare bills, personal loans, payday loans, and the like. As long as you meet eligibility requirements you should have no trouble qualifying for Chapter 7 if the majority of your debt is unsecured.
Assess Your Assets
Chapter 7 bankruptcy is, for all intents and purposes, a total liquidation of all your non-exempt assets. Exempt assets would include things like your primary residence and any vehicles required by your family to get to and from work. Non-exempt assets include securities, savings accounts, jewelry, investment or vacation real estate, motor homes and RVs, and valuable collectibles. In other words, just about anything not needed to maintain your daily routine will be considered fair game.
It's important that you assess all of your assets in order to determine whether or not you're willing to lose them all. If you have assets you want to protect, perhaps Chapter 7 is not the way to go. Chapter 13 reorganization will allow you to retain ownership of your assets as long as you work out a reasonable plan to repay the debt.
File Your Bankruptcy Petition
The last step in the filing process is to actually file the completed paperwork and its accompanying documentation with the court's clerk. Individuals will file either in the jurisdiction of their principal residence or the jurisdiction of their place of business, if the two are different. Some of the smaller states have only a single court jurisdiction while larger states have multiple jurisdictions. Your attorney will be aware of the court to which you submit your paperwork. Sometimes he will file it for you, other times you may be required to file it yourself. Make sure that you obtain proof of filing before you leave the clerk's office.