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Are you struggling financially? Have you considered Chapter 7?

An old cliché says, "The definition of insanity is doing the same thing over and over again, but expecting a different outcome." You might feel this way as you attempt to fix your financial situation. If your finances control you instead of you controlling them, you might need to find another way to end your struggle.

Filing for Chapter 7 bankruptcy could provide the answer. Many people are wary of the process because they fail to understand it. Answering your questions about the basic process might make it a more attractive option.

Are you eligible to file Chapter 7?

Before you can consider filing for Chapter 7 bankruptcy, you must qualify to do so. First, you must take the means test to determine whether you meet the financial qualifications to file. The test determines whether you meet certain income and expense requirements. If you do, you may file under this chapter.

However, you must also meet the following qualifications within the 180 days prior to filing:

  1. No dismissal of prior bankruptcy due to:
  • Failure to comply with court orders
  • Failure to appear as ordered
  • Voluntary dismissal
  • Participation in court-approved credit counseling

The court will not guarantee you a discharge. Bankruptcy cannot wipe out certain debts or erase a lien on property. However, if you file in good faith, you could receive a discharge that allows you to start fresh.

What happens after I qualify to file?

After you gather the necessary information regarding your income, assets and debts, you prepare your petition. You must file the following with your petition:

  • Proof of credit counseling
  • Schedule of current expenses and income
  • Schedules of property and debts
  • Statement of financial affairs
  • Schedule of executory contracts and unexpired leases
  • Statement of monthly net income
  • Proof of income for 60 days prior to filing
  • Statement of net income
  • Statement of any anticipated increases in expenses or income after filing
  • Statement of participation in federal or state college accounts
  • Creditor matrix (detailed listing of all creditors)

You and your spouse may file a joint petition, schedules and creditor matrix, but each of you must file the remaining documents individually. If you file separately from your spouse, you must still provide his or her income and expenses to the court.

What happens after I file these documents?

An automatic stay goes into effect, during which the court prohibits your creditors from attempting to collect on the debts you owe them. However, some creditors might ask the court for permission to move forward with some actions such as a foreclosure or repossession.

The court will require you to attend a 341 hearing (a meeting of creditors). During this meeting, the trustee verifies that no abuse occurred and determines whether you own any assets that could provide payment to your creditors after sale. Your creditors can attend this meeting if they choose to do so.

Will I get to keep my property?

The U.S. Bankruptcy Code and New York law allow you to retain certain property so long as it does not exceed certain amounts. Which exemptions you use requires careful consideration.

This article only touches on the basic process behind a Chapter 7 bankruptcy. During the course of your case, any number of issues could arise. Even under the best of circumstances, filing a bankruptcy without the assistance of an attorney could jeopardize your chances of receiving a discharge. If your case becomes complicated, you would more than likely benefit from already having an attorney assisting you with the process.

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