What is the Process of Chapter 7 Bankruptcy?

What You Need to Know About the Process of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a more streamlined process than a Chapter 13 bankruptcy. However, they both share many common parts. For example, both require the debtor to complete 2 credit counseling courses in order to complete the bankruptcy case, and they both require the debtor to attend a trustee hearing.

The major steps of a typical Chapter 7 are laid out below. Remember that there are more steps and issues to cover than are listed here. This is just to give you some familiarity with the process. If you want to learn more about what Chapter 7 can do for you, click here. If you have questions about qualifying for Chapter 7, click here.


Step 1. Credit Counseling

Before a debtor may file a bankruptcy case with the court; the law requires that the debtor complete a credit counseling course. This course can be completed either online or at a credit counseling location. The debtor must use an approved provider for the course and obtain a certificate of completion. This certificate must be filed with the court when the petition is filed. There are situations where the course may be completed after filing but do not depend on the court thinking your situation qualifies.


Step 2. Data Collection

The next step is to get all of the information needed to file the case. You will need to find out what your gross income for the last 6 months was from all sources including unemployment, retirement, spousal support, child support, employment, business income, etc. You will also need to identify all debts and the account numbers and addresses for each creditor. All debts must be included, no matter whether you want to file bankruptcy against that creditor or not. Then you will need to list all of your assets such as real estate, cars, boats, motorcycles, collectibles, brokerage accounts, retirement accounts, cash-value insurance, etc. The idea is to find out how much you made, how much you owe, and how much you own.


Step 3. Paperwork Collection

In every case filed, a trustee is assigned to each case. The trustee will want to review certain documents and the specific documents that need to be reviewed vary by a trustee. Some trustees will want to see both your Federal and State tax returns while another trustee will only want your Federal return. Some common documents you will need include a government photo ID, such as a driver's license, and your Social Security card. You will need these documents for your trustee hearing. Also, the trustee is likely going to want to review your bank records for the 3-6 months prior to the bankruptcy filing date. There are other documents that you will likely need to collect and your attorney will advise you. Generally, your attorney is going to need bank statements, car titles, tax returns, brokerage and retirement statements, insurance documents and a host of other documents related to your financial situation


Step 4. Preparing & Filing the Bankruptcy Case

Once you have collected all of your financial data and the required documents, it is time to get to work. Your attorney will take your information and after performing an extensive evaluation and review of your situation, will begin the process of preparing your bankruptcy petition, the attending schedules, and other required documents. Once the bankruptcy paperwork is completed, you will then sit down with your attorney and review the paperwork for errors, omissions and to make any correction necessary. Once the paperwork is correct, you will sign the documents and your attorney will then file the case with the bankruptcy court.


Step 5. The Trustee Hearing

About 45 days after your case is filed, you will be required to attend a Trustee's Hearing, also called a "341 Hearing." Before this hearing takes place, you should have completed your second credit counseling course and forwarded a certificate of completion to your attorney for filing with the court. At this hearing, two things will happen: 1) the trustee will question you about your paperwork to make sure there are no errors, omissions, or changes that are not reflected in the paperwork, and; 2) any creditor that wishes to ask you about your assets will be allowed to ask you questions. The hearing normally takes just a few minutes, unless there are mistakes, omissions or changes to the paperwork that needs to be made and filed with the court. Most people are understandably nervous during the hearing, but once it is over, the most common question by the debtor is "is that it?" After the hearing, that is usually the last thing you have to do in Chapter 7. If the trustee needs some additional information, the trustee will reschedule the hearing so that the new information can be provided to the trustee. Once the trustee is satisfied, the trustee will conclude the hearing. At that point, as long as the trustee or creditor hasn't filed an objection, all you have to do is wait for your discharge.

If You Have More Questions


Please contact us if you have more questions or are ready to move forward and start the process of becoming debt-free. Remember, we are here to help you resolve your debt problems, so call us now!

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