by Rennee R. Dehesa, Esq.
The most common type of personal bankruptcy is Chapter 7. Often referred to as "liquidation bankruptcy," "personal bankruptcy," or "straight bankruptcy," the purpose of a Chapter 7 bankruptcy is to allow an individual or business to cancel outstanding debts and liquidate certain property in an orderly fashion. The average Chapter 7 personal bankruptcy takes approximately 5-6 months to complete.
There are really two phases to the Chapter 7 personal bankruptcy process. The first phase involves preparing to file for bankruptcy, while the second phase involves actually filing your bankruptcy case. Both phases are described below.
Preparing to File for Bankruptcy
1. Make sure bankruptcy is right for you: This step involves analyzing your outstanding debts and assets and making sure that a Chapter 7 bankruptcy is the right step for you. Most people considering bankruptcy have probably already gone through a preliminary review of their finances. But it is still important to sit down and make sure you haven’t missed anything. A bankruptcy attorney can assist you with this process. You shouldn’t be alarmed if you don’t currently have any assets (e.g., your bank account balances are at or near zero)—most personal bankruptcy filers are in the same situation.
2. Determine your eligibility for bankruptcy and what property exemptions you might qualify for: Not everyone is qualified to file for personal bankruptcy. If your current earnings are substantial, you may not qualify. Likewise, if you have substantial liquid assets, you also might not qualify. An experienced bankruptcy attorney can help you determine if you are eligible to file. In addition to determining your eligibility to file for Chapter 7 personal bankruptcy, it is important to figure out if any of your assets will be exempt from liquidation. In other words, it’s important to determine what property and assets (such as your home) you will be able to keep after the bankruptcy is complete.
Filing for Bankruptcy
The second phase in the personal bankruptcy process is the actual filing of your bankruptcy case. Below are the steps involved during this stage:
1. Complete and file the bankruptcy filing forms: A Chapter 7 personal bankruptcy filing begins by completing and filing a Bankruptcy Petition and related informational forms. A personal bankruptcy attorney can help you complete the forms required to initiate your bankruptcy case. Once these forms are filed, a Bankruptcy Trustee will be appointed to review your case. It is important to be accurate and truthful on all of the bankruptcy forms because they will be reviewed by the Bankruptcy Trustee and possibly the Bankruptcy Judge. The purpose of the bankruptcy filing forms is to provide the Trustee with information about the debts you owe, your current income and any assets you have. If you have debts that are secured by collateral (car loan, mortgage, loan on personal property), you will need to explain in the bankruptcy forms how you intend to deal with these debts. Your options are generally to relinquish the collateral (give up a car with heavy loans), renegotiate the debt or continue paying the debt as agreed. Depending on your particular situation, one of these options may be preferred over others.
2. Creditors meeting: After your case is filed, you will need to come to court once to meet with the Trustee and any of your creditors who choose to appear at the meeting. In the average personal bankruptcy, most creditors do not attend the meeting.
3. Wrap up and discharge: If everything goes smoothly, the Court will discharge your un-secured debts and you will be out of bankruptcy within 5-6 months from your initial filing. If your case is very straightforward—no assets and only unsecured debts—you could complete the process in as little as 3 months.
If you aren’t sure whether bankruptcy is a good option for you, make an appointment today for a free consultation and I will happily review your financial situation with you to help you determine your options.