Credit Card Bankruptcy Chapter 7
Toll Free: 800-220-4318
There are several different types of bankruptcy.
The two most common individual consumer bankruptcies are Chapter 7 and Chapter 13. Credit Card Chapter 7 Bankruptcy is simply a Chapter 7. Choosing which option is best for you can take some time, but in many cases, a person will only qualify for one or the other. An attorney can help you decide if Chapter 7 or Chapter 13 is the right choice.
The US Bankruptcy Code, which is the set of laws that govern bankruptcy and tell the bankruptcy court how to operate, is divided into chapters. This is why the different types of bankruptcy are referred to as chapters. Each chapter is further divided into sections that outline what consumers, debt collectors, creditors, and the bankruptcy court can and cannot do.
Understanding the different types of bankruptcy can help you determine which one to pursue. Chapter 7 is a popular option because it enables you to have your credit card and some other debt discharged, which means you will no longer be legally obligated to pay it.
Passing the Means Test
In order to qualify for Chapter 7 bankruptcy, a person must first pass the means test.
This is a document your attorney can help you with and it calculates whether you can afford to pay a meaningful portion of your debt. It takes into account your income over the last six months and compares it to the median income for people living in the same region as you. It also takes into account what you owe in terms of secured debt.
If you fail the means test, your only option would be to file for Chapter 13 bankruptcy, with just a few very specific exceptions.
What Occurs in Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, sometimes referred to as “credit card bankruptcy” is the thing most people think about when they hear bankruptcy.
In Chapter 7, a person files for bankruptcy with the court and the court appoints a trustee to oversee his or her case. This is not the filer’s attorney. Most people work with a bankruptcy attorney, who is working to ensure their rights are protected, while a trustee also oversees the case. Essentially, the bankruptcy lawyer is there to guide your decisions and to ensure the trustee does as they should.
The trustee’s job is to take the filer’s assets, sell them, and then distribute that money to creditors that have made claims against them. Chapter 7 liquidates the majority of a person’s assets, but they are allowed to exempt a few things so they are not beginning again with nothing.
How to Prepare to File Chapter 7
There are numerous things you need to do in order to file for Chapter 7 bankruptcy and many of your responsibilities begin long before you officially file with the court. This is one of the reasons it is so important to contact an attorney sooner rather than later. Even if you have no intention of immediately filing for bankruptcy, an attorney can assess your situation and tell you what you should and should not do, just in case you eventually end up filing.
Once you are ready to file, you’ll need to gather all of your financial records which you’ll review with your attorney. It is essential you share a complete picture of your financial situation during this time. Failing to include assets when you file or neglecting to share a financial transaction can get you accused of bankruptcy fraud. Your best bet is to tell your attorney everything and let him or her decide how to address the issue when you file.
Next, you’ll need to complete the bankruptcy petition, schedules, statement of financial affairs, and other documents. It’s a lot of paperwork and it needs to be complete and correct – otherwise the court can dismiss your case and you’ll lose your opportunity for a fresh financial start. You’ll also need to back up anything you claim with financial records, so take some time to organize your paperwork before meeting with an attorney.
One of the requirements for filing for bankruptcy is to participate in a credit counseling session before you file. You’ll review alternatives to bankruptcy and be able to determine if filing is really right for you.
Later in the process, you’ll also be required to participate in a financial management course and show documentation that you completed the course. This second session is to help you manage your finances as you emerge from bankruptcy.
Meeting of Creditors
Next in the bankruptcy process, you’ll attend a 341 Meeting of Creditors. This is the time when you meet with the people to whom you owe money – or more likely, they’re legal representatives.
During the meeting, the trustee asks you questions about your paperwork and your financial situations. The creditors attending the meeting are also allowed to ask you questions and state their case if they believe your obligation to them should not be discharged in the bankruptcy.
The Meeting of Creditors is usually the most intimidating part of filing for bankruptcy, but it need not be. It’s rare that creditors actually attend the meeting, and your attorney will accompany you to the meeting and advise you on anything that arises.
Discharge of Debt
As long as the Meeting of Creditors goes smoothly, and nobody objects to discharge, the court will give you a discharge within 60 days. The discharge prevents creditors from attempting to collect on any debt that was in place prior to you having filed (as long as the debt was included in the bankruptcy). This discharge is what removes your legal obligation to the debt.
Keep in mind this doesn’t eliminate the debt and if the debt had a co-signer, the creditor can still pursue that person. Bankruptcy is personal – it applies to you (assuming you filed individually and not with a spouse), so it’s only you who is released from the debt obligation. The debt exists, you just aren’t legally required to pay it.
If you would like to learn more about Chapter 7 bankruptcy or you have questions about whether it could help you, contact 1.800.220.4318.