If you find yourself in a position whereby you are suffering extreme financial hardship, bankruptcies may be something that you are considering. You may have many bankruptcy questions and concerns about how the personal bankruptcy process works, such as: how to file bankruptcy, can I file bankruptcy for free, and how does bankruptcy affect my credit score?
When someone needs to file for bankruptcy protection, he or she needs to make one initial decision – the type of bankruptcy that should be filed that’s right for the situation. There are choices for the consumer, namely petitions under either Chapter 7 or Chapter 13 of the United States Bankruptcy Code.
Below is a brief explanation of how filing a Chapter 7 bankruptcy works, but regardless of your financial situation, you need to seek legal help to make sure that your petition proceeds properly.
Chapter 7 Explained
If a consumer files a Chapter 7 petition, he or she is filing what’s known as a ‘liquidation bankruptcy.’ This is because, in certain respects, the petitioner will be liquidating a majority of the assets held at the time of the filing, but not all of them, as will be explained below. The steps for filing a Chapter 7 bankruptcy petition are as follows:
Gather your financial information – When you file a Chapter 7 bankruptcy petition, you will need to present a complete schedule of your assets and your liabilities to the Bankruptcy Court for the Trustee to review. This information is the foundational basis for filing in the first place – you’ll need to show that your liabilities exceed your assets.
File your petition – After you’ve organized all of your financial information, you need to put the documentation together and file it with the Bankruptcy Court. Assuming the initial petition is reasonable, the court will usually respond by serving a Stay of Execution on the creditors named in your petition, which is basically an order from the court that requires the creditors to cease with collection efforts.
Go to your hearing – The next step in the process is going to a hearing with the Bankruptcy Trustee, and your creditors have the option of attending as well. At this time, the Trustee will ask you on the record if your petition is accurate and will note any objections your creditors may have.
Wait for the Order of Discharge – Assuming there are no problems with your petition, the court will review the information and issue an order discharging your debts. In order to comply with this procedural step, you’ll need to liquidate your assets minus any exemptions. When this is complete, your bankruptcy is complete and your debts are eliminated.
Note on exemptions – Exemptions are values placed on a certain property that cannot be liquidated, as the Bankruptcy Court does not want to leave petitioners completely destitute. What this means is that you are allowed to keep certain assets up to a certain value including a house, a car, any materials you need for work and even pets, among other things. Different states have different exemption levels, so you’ll need to get those amounts clarified before moving forward.