Debt Relief Through Chapter 7 Bankruptcy - How Hard Is It?

What to expect with a Chapter 7 Bankruptcy - the process, tips on getting help, what situations may lead to the decision to file bankruptcy.

Declaring bankruptcy for most people is a very difficult thing to do.  When the bankruptcy laws changed in October 2005, it was deemed the bankruptcy abuse prevention law but in reality, most people who declare bankruptcy do so as a last resort.  A major health crisis (illness), change in family structure (divorce), long term injury or loss of employment are leading reasons why people seek debt relief through bankruptcy.

If you are thinking about declaring bankruptcy, then most likely you are suffering from a major financial crisis due to unforeseen circumstances.  Normally, we don't incur debt that we feel certain we won't pay.  We incur debt with the intention of making repayment.  While abuse of the system is of concern and there are those who use bankruptcy to wipe their slate clean just to fill it up again, it's not what your average bankruptcy filer does. 

So, the first thing to remember if you are facing bankruptcy is that it does not mean you are a bad person.  It can be an emotional rollercoaster for you so it's important to turn to the people in your support system who can help you deal with what you are feeling.  You need to have a personal advocate - someone who will remind you that you are a good person and that this measure is an extreme measure resulting from situations or events beyond your control.  Even if bad decisions led to your incurring debt you now cannot repay, it does not make you a bad person.

This article addresses the process of a Chapter 7 Bankruptcy - the discharge of debts.

The first requirement to filing bankruptcy is to get credit counseling from an approved agency.  You can search your state here for a list of approved agencies.  There is a nominal fee for most so be sure to ask if they have a fee waiver policy.  You may not meet the fee waiving guidelines but be sure to at least ask.

The credit counseling is a procedure where you go through your debts and income to determine the best course of action in contending with your debt situation.  The credit counselor will make a recommendation, including whether or not your situation warrants declaring bankruptcy.  You will receive a certificate, which must be filed along with you bankruptcy petition so keep it safe! 

Once you complete the credit counseling process, you have 180 days to file your bankruptcy petition.  Don't wait.  Preparing a bankruptcy petition is a lengthy process. So don't wait.

Look in your area for a law school with a consumer law clinic.  The law school I attended had a consumer and commercial law clinic, which I participated in and I helped many people with bankruptcy petition filing as a student under the supervision of a licensed attorney who thoroughly reviews the students work.  Low income clients receive high quality legal assistance at no cost.  You must meet the income requirements to receive their service.  If you do not qualify, call your local bar assocation for "pro bono" (free) or lost cost bankruptcy attorneys. 

If you cannot find a free or low cost attorney in your area, you may have to find an attorney who will charge a fee.  Try to find an attorney who will make payment arrangements so that it will be more affordable for you.  It is possible to file a bankruptcy petition "pro se" or without representation but the bankruptcy law is quite complex and the petition is difficult for most people to complete without legal assistance.  If you receive assistance from someone you know who is in the legal field, be sure they have experience with the new bankruptcy laws.  Accuracy is crucial or you may end of with an adverse result.

The bankruptcy court has a filing fee, which varies according to the chapter you are filing.  A fee waiver is available under certain chapters so check to see if this is an option for you. 

Be sure to gather your financial documentation and include every debt you have.  If you fail to include a debt in your bankruptcy petition, it does not get discharged!  Be thorough in your list of creditors.  Only the debts you include in your petition are eligible to get discharged.  Certain debts are not dischargeable such as taxes owed and student loans.  Some debts may be "reaffirmed" - which means you do not discharge the debt and continue to make payments (i.e. car loan, mortgage).

Once your petition is filed, all creditors must cease debt collection action.  This includes any pending court action against you.  If a creditor has filed a court action for repayment of a debt, you will have to file a motion with that court for a "stay" - which means that your proceeding will be continued until the bankruptcy matter is resolved.  Again, your attorney or legal advisor will help with this.  Be sure to let them know about it.

WIthin 30 days of filing the bankruptcy petition, the bankruptcy court will schedule your "creditors meeting."  This is an informal meeting conducted by the Bankruptcy Trustee assigned to your case.  The Trustee oversees the bankruptcy process and makes recommendations to the court regarding your case.  The Trustee will ask you questions regarding your petition and you will be asked to verify your answers under oath.  Your creditors have the opportunity to attend this meeting and ask you questions as well, however, most creditors do not attend.  Usually creditors who are large institutions do not attend unless they have reason to believe you are attempting fraud.  Smaller creditors, such as landlords or people who have made a personal loan to you, may attend.  They have limited time to ask you questions and the Trustee oversees this process.

Once the creditor's meeting is complete, there is a 60 day period where creditors may oppose the discharge of the debt.  Again, unless you have a creditor with reason to believe you are committing fraud, you should not have anything to worry about.  Unless there is some adverse action, you will not be required to attend court. 

At the end of that period, you will receive an order from the bankruptcy court discharging the debts listed in your bankruptcy petition.

While the process itself can be quite stressful, its fairly streamlined and relatively painless once the petition is filed.  It is important to know your rights and responsibilities and to have a good source for legal information.  While its possible to file a bankruptcy petition without legal counsel, it's not prudent.  You don't want to go through this process and end up without the result you seek - the discharge of all your dischargeable debts.

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