Bankruptcy is a court proceeding in which you declare your inability to make payments to your creditors. A trustee is appointed to liquidate your assets and pay off your creditors. Chapter 7 bankruptcy otherwise known as “liquidation bankruptcy”, converts your assets into money. Majority of the debtors opt for liquidation bankruptcy. The main objective of filing for bankruptcy is to help you overcome financial crisis and make a fresh start financially. Only non exempt assets are liquidated to pay off creditors. Exemptions differ from one state to another and excluding the exemptions, bankruptcy law is the same in all states. Once you hand over your assets to the trustee, you lose the right to give away or sell your property to anyone.

“Order for Relief”

When you file Chapter 7 bankruptcy, an “Order for Relief” comes into effect. It is also known as an “automatic stay”. Automatic stay prevents creditors from harassing you for debt collection. So, your wages are safe and creditors can’t garnish your wages. They are not allowed to take away your car or property.

Are you eligible for Chapter 7 bankruptcy?

The New Federal Bankruptcy Laws that came into effect on 17th October 2005 have made filing for bankruptcy very rigid. As per the new law, you have to undergo a “Means test”. In Means test, your income is calculated and compared to the median income of a household of the same size in the state you reside. In case it is found that your current income level is less than the median income, you qualify for Chapter 7 bankruptcy. Or else, you qualify for Chapter 13 bankruptcy in which you have to make payments to creditors as per a new repayment plan. The total time to get out of debt with Chapter 7 bankruptcy is roughly 4 months to 6 months. And you are required to shell out approximately USD$299 for filing bankruptcy and making payments for administrative fees. Given below is a step-by step process of Chapter 7 bankruptcy.

• Your debts are analyzed

• Take note of asset exemptions

• Take the means test to see whether you qualify or not

• You can either reaffirm or redeem your secured debts.

• File bankruptcy forms after filling them up

• File objections if necessary

• Wrap up your secured debts

• Get debts discharged