Chapter 7 Bankruptcy: What is It and How to Cope

Chapter 7 bankruptcy can be confusing and stressful to say the least, but in our current economic climate, many are forced to look at bankruptcy as a way out of insurmountable debt. Chapter 7 bankruptcy is a legal process designed to dismiss debts of any individual, partnership, corporation, or any other business entity. Clearly stated, it can provide someone hopelessly drowning in debt with a fresh start. The process generally involves the liquidation of non-exempt property (ie: real estate, car, boat, etc.) by a bankruptcy trustee. The proceeds of the liquidation are used to pay off debt.

Filing Chapter 7 really can provide you with a fresh start. Creditor harassment will stop and your debt will be erased, but not before navigating 3-5 months of legal stress and years of bad credit.

Chapter 7 stays on your credit report for 10 years negatively affecting your chances of obtaining credit during that time. However, you may apply for a mortgage loan after 2 years. Another thing to consider, Chapter 7 bankruptcy is a matter of public record. Though it will not be advertised in neon lights, people may be able to dig up your bankruptcy skeletons if they really want to. The following 5 steps will give you an overview of what to expect.

Search for an alternative

As of October 17, 2005, new laws enacted to prevent bankruptcy abuse require that you obtain Consumer Credit Counseling through an approved source within 180 days of filing Chapter 7. Who knows? This may be just enough to get you through your financial tough times.

Decide whether or not you will use an attorney

Many financial and legal experts highly recommend that you retain a lawyer to help you navigate the process. Do you want to communicate directly with your lawyer or are you comfortable working with a paralegal? Do your homework and find someone you can trust.

Attorney fees vary

Some lawyers charge a flat fee, or an hourly fee, others base their fee on the amount of your debt. Your best bet to keep costs down is to be as organized as possible and prepare for each meeting. Once you retain an attorney, you should refer all creditors to that attorney. This should end creditor harassment.

Next, you will be scheduled to meet with your creditors

This is called a “341 meeting”. Your lawyer should prepare you for this meeting and go over possible questions that will be asked and recorded in regard to the specifics of your debt. At this point it will be decided whether or not you have assets that can be liquidated. The proceeds from the liquidation will go toward paying off your debt.

Your creditors have 60 days from the date of your meeting to file a lawsuit disputing the discharge of your debt. If no lawsuit is filed, you will receive the “notice of discharge”. This notice means you are cleared of all your debts.

At this point you will have made it through Chapter 7 bankruptcy. Take a deep breath and start fresh.

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