An Overview of Chapter 7 Bankruptcy
Chapter 7 bankruptcy is sometimes called "liquidation" bankruptcy -- it cancels your debts, but you might have to let the bankruptcy court liquidate (sell) some of your property for the benefit of your creditors.
Chapter 7 bankruptcy refers to the chapter of the federal statutes (the Bankruptcy Code) that contains the bankruptcy law.
Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to six months, costs $274 in filing and administrative fees, and commonly requires only one trip to the courthouse.
Who Can File
Chapter 7 can be a powerful remedy for debt problems, but it isn't available to everyone. For example, you won't be able to use Chapter 7 if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. (For more information on these eligibility requirements, see Who Can File for Chapter 7 Bankruptcy?.)
Bankruptcy Forms
To file for bankruptcy, you fill out a two-page petition and a number of other forms. Then you file the petition and forms with the bankruptcy court in your area. Basically, the forms ask you to describe:
- your property
- your current income and its sources
- your current monthly living expenses
- your debts
- property you claim the law allows you to keep through the bankruptcy process (called "exempt property") -- most states let you keep some equity in your home, clothing, household furnishings, Social Security payments you haven't spent, and other necessities such as a car and the tools of your trade.
- property you owned and money you spent during the previous two years, and
- property you sold or gave away during the previous two years.
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