Filing Chapter 7 Bankruptcy

Filing Chapter 7 Bankruptcy

Last updated: July 2012

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Filing for bankruptcy is not a good idea for everyone. It is a serious step and you should only file for bankruptcy if you know it will help you. Chapter 7 bankruptcy wipes out or “discharges” certain unpaid debts. The bankruptcy laws allow you to keep a limited amount of income and property. The property you don’t keep is sold to pay off your debts. Chapter 7 bankruptcy does not wipe out all forms of debt. Some examples of debt that you will still owe are:Unpaid child support paymentsUnpaid maintenance or alimony paymentsUnpaid finesA bankruptcy will stay on your credit history for 10 years. This means that when you apply for a loan, the lender will be able to see that you have filed for bankruptcy for 10 years after you file.Click on words that appear like 'this' to learn what these words mean.What is Chapter 7 bankruptcy? A Chapter 7 bankruptcy is when you file court papers asking that certain unpaid debts are wiped out or “discharged.” The bankruptcy laws allow you to keep a limited amount of income and property. The property you don’t keep is sold to pay off your debts. The bankruptcy laws also give debtors special protections and decide how creditors will be paid. Who can file for Chapter 7 bankruptcy? You can file for Chapter 7 bankruptcy if you meet two requirements:You have not received a Chapter 7 discharge in the last 8 years; andYou pass a “means test.” The means test determines how much money you have leftover to pay your creditors after you’ve paid basic living expenses. If your leftover income is too high, you fail the means test and your request for Chapter 7 bankruptcy will be denied. What information do I need for the means test? You will need the following information to calculate your “current monthly income” for the first part of the means test:Your total income for the last six months. If you are married and live with your spouse, you will also need your spouse’s total income for the last six months.The median family income for your household size. You can find the Illinois median family income by household size by going to the U.S. Trustee’s Website.If your “current monthly income” is above a certain amount, you will need additional information from the IRS website.How do I figure out if I’ll pass the means test? In bankruptcy court, your “current monthly income” is your average monthly income for the six months before you filed for bankruptcy. Add together your total income for the past six months and divide by six. This number is your current monthly income.For example, if you made $1500 a month for the past six months, multiple $1500 by six. Divide the result, $9000, by six. The result, $1500, is your “current monthly income.” If you made a different amount each month for the past six months, add those six numbers together and divide by six.If your current income is less than the median family income in Illinois, for your household size, you are eligible to file for Chapter 7 bankruptcy. You can find the median family income by household size in Illinois by going to the U.S. Trustee’s Website.In 2010, the median family income for a household of 4 in Illinois was $81,175. If your current income is more than the median family income in Illinois, you will have to complete the second part of the means test to find out if you are eligible to file for Chapter 7. For more information on the means test, see the instructions section of this guide or visit the online means test calculator.What property can I keep in a Chapter 7 bankruptcy? When you file for Chapter 7 bankruptcy, you can keep some of your property. Bankruptcy law calls this “exempt” property. The exemptions come from your equity in the property. Equity is the value of your interest in the property after liens and other creditors’ interests are taken into account. The kind of property you can keep varies by state. In Illinois, the major types of exempt property are:Up to $15,000 of equity in a home, including a mobile home, cooperative or condominiumUp to $2,400 of equity in one motor vehicleNecessary clothingUp to $4,000 of personal property of any kindUp to $1,500 of tools of the tradePension benefits and some retirement accounts, like 401Ks and IRAs.What court papers will I need to file for Chapter 7 bankruptcy? You need to fill out many court forms to file for Chapter 7 bankruptcy:A voluntary bankruptcy petition, which gives the court basic information about your case; Schedules, which tell the court who you owe money to and how much you owe them, what property you own, how much income you make, and how you spend that income;A statement of social security number, which tells the court what your social security number is;A statement of financial affairs, which tells the court about your recent financial activities;A signed notice, which tells the court that you understand the recent changes to bankruptcy law;A statement of intention, which tells the court whether you plan to keep or give back any property that is collateral for a loan, like your house or car;A signed certificate, which shows the court that you completed the mandatory pre-petition credit counseling;You must also provide 60 days worth of pay stubs and your most recent income tax return.What kind of information do I have to disclose to file for Chapter 7 bankruptcy? You will need to give the court information about the following: Your real property, like your home Your personal property, like cash, clothing, household goods, or carsYour debts: you must tell the court who you owe money to and how much you owe them. You must list everyone you owe, including debts that are not dischargeable. Recent payments to creditors: you must tell the court about any payments made to creditors in the time just before you filed for bankruptcyMonetary gifts or donations: you must tell the court about large gifts to friends, family members or charitiesHow much does filing a Chapter 7 bankruptcy cost? You will be charged a filing fee by the Clerk to file your court papers. As of the end of 2012, the cost to file for a Chapter 7 Bankruptcy was $306.What if I can’t afford the fee to file my court papers? If you can’t pay this amount all at once, you can apply to pay the fee in installments. If you can’t afford to pay the fee at all, you can apply for a fee waiver. See the “forms” section of this guide for information on how to apply for these payment options.Will I get rid of all of my debt if I file for Chapter 7 bankruptcy? No. Chapter 7 bankruptcy does not wipe out all forms of debt. The bankruptcy laws allow certain debts to survive a bankruptcy discharge. If you owe money for any of the following reasons, a bankruptcy discharge will not wipe out the debt:Unpaid child support paymentsUnpaid maintenance or alimony paymentsUnpaid finesMost unpaid state and federal taxesCriminal restitution ordersDebts due to fraud, theft or embezzlementDamages to another person caused by drunk driving or willful and malicious conductDebts from a property settlement in a divorceStudent loans unless paying back the student loan would be an undue hardshipSome other types of debtsWhat are my options if I have a home mortgage or a car loan? If you have any debt subject to a lien (like a mortgage or a security interest), you must decide what you want to do with the property. You have three choices:You can reaffirm the debt, by agreeing to continue to pay the creditor after your bankruptcy You can redeem the property, by paying the creditor the value of the property in one large paymentYou can surrender, or give up, the propertyWhat happens after I file for Chapter 7 bankruptcy? When you file your bankruptcy petition, three events automatically occur:The bankruptcy estate is created;The “automatic stay” goes into effect; and A Chapter 7 Trustee is appointed. What is the bankruptcy estate? The bankruptcy estate is created the moment you file for bankruptcy. It is made up of all of the non-exempt property you owned the moment you filed for bankruptcy. The trustee sells the property of the estate in exchange for wiping out your debts.What is the “automatic stay”? The “automatic stay” goes into effect as soon as you file for bankruptcy. This means that all collection activity by your creditors or collection agencies must stop. Creditors cannot repossess or seize your property. Lawsuits to collect money or to foreclose on your property are frozen and cannot go ahead unless the bankruptcy court gives permission. If a creditor still pursues collection of a debt, you may be able to collect money damages against them.Does an automatic stay apply to all my creditors? There are some exceptions to the automatic stay. The stay does not apply to criminal proceedings, child support or paternity suits. A government agency can also go forward with an action to make you obey the law, for example, to clean up property that is a safety hazard.Secured creditors can try to lift the stay in some situations. You should talk to an attorney if one of your creditors tries to lift the automatic stay. What is the Chapter 7 Trustee? A Chapter 7 Trustee is appointed the moment you file for bankruptcy. The trustee manages your case. The trustee gathers the property of the estate, sells it at a public auction, and gives the money to your creditors. The trustee is also in charge of the Meeting of Your Creditors. The Meeting of Your Creditors is held within 60 days of your filing for bankruptcy. All of your creditors may attend and can ask you questions while you are under oath, although it is rare for them to do so. You should bring a photo ID and your social security card with you. The meeting will probably be very informal and in most cases will last no more than 10 minutes, but you must attend the meeting. If you don’t attend the meeting, your case will be dismissed.What are creditors? Creditors are people you owe money to. There are three kinds of creditors: secured creditors, priority unsecured creditors, and general unsecured creditors.Secured creditors are those creditors who have a security interest in your property. Secured creditors have the right to get the property back if you are not making payments. One of the most common secured debts is a home. If you buy a home, the bank likely takes a security interest (called a mortgage) in the house. Other common secured debts are cars, furniture, and major appliances. Priority unsecured creditors are unsecured creditors that the bankruptcy law favors over other creditors. They do not have a security interest in your property. Examples of priority unsecured creditors include:A spouse, former spouse or child who you owe alimony or child support toThe costs of the trustee in administering the bankruptcy The state or federal government for unpaid taxesGeneral unsecured creditors have neither a security interest in your property nor a priority over other creditors. Common examples include credit card debt, medical bills, and utility bills. General unsecured creditors get paid last in a Chapter 7 bankruptcy.How are my creditors repaid in a bankruptcy? First, the trustee collects all of your non-exempt property. Next, the trustee sells the property at a public auction. The trustee gives the money from the sale to your creditors. The trustee’s job is to try to get your creditors as much money as possible.Secured creditors are paid first in a bankruptcy. Priority unsecured creditors get paid next. Each level must get paid in full before general unsecured creditors can get paid at all. General unsecured creditors get paid last in a Chapter 7 bankruptcy. Whatever amount of money is left over after secured creditors and priority unsecured creditors have been paid is divided equally among all general unsecured creditors. They often only get a small percentage of the amount they are owed.The trustee is also given a percentage of the sales.I’m married. Do I have to file a joint bankruptcy with my spouse? No, if you’re married you don’t have to file a joint bankruptcy with your spouse. You can choose to file for bankruptcy alone. However, if you’re married and filing alone, you must still include your spouse’s income on some bankruptcy forms.How long will a Chapter 7 bankruptcy stay on my credit history? A bankruptcy will stay on your credit history for 10 years. This means that when you apply for a loan, the lender will be able to see that you have filed for bankruptcy for 10 years after you file. As a result of your bankruptcy, many lenders may decline you for a loan or charge you a higher interest rate. I’ve been granted a Chapter 7 bankruptcy before, how long do I need to wait to file another bankruptcy? You must wait 8 years after receiving a Chapter 7 discharge before filing another Chapter 7. If you are not eligible to file for Chapter 7, you might be able to file for Chapter 13. If you have not received a Chapter 7 discharge in the last 4 years or a Chapter 13 discharge in the last 2 years, you might be able to file for Chapter 13. If you are considering filing a Chapter 13 bankruptcy, you should talk with a lawyer. You can search for a lawyer in the Find Legal Help section. Is filing for a Chapter 7 bankruptcy a good idea for everyone? No, filing for bankruptcy is not a good idea for everyone. It is a serious step and you should only file for bankruptcy if you know it will help you.Filing for bankruptcy will not help you if you are a “collection proof” debtor. You are a collection proof debtor if the following are true:You have no income, your take home pay from work is below $371.25 a week, or your income is from a protected source like public benefits, child support or Social Security;If you do not own a home or own one with less than $15,000 in equity;If you do not own a car or own one with less than $2,400 in equity;The value of your personal property is not more than $4,000.If you are a collection proof debtor, your creditors are already limited in their ability to collect money from you to pay a debt even without you filing a bankruptcy petition.To determine if bankruptcy is right for you, talk with a lawyer. You can search for a lawyer in the Find Legal Help section. Should I file for bankruptcy without a lawyer? Be careful if you are filing for bankruptcy without a lawyer. Filing for bankruptcy is very complicated. If you make a mistake, it could be very costly to you. A mistake on your forms could mean that you will be denied a discharge of one or more of your debts. If you say or write something untrue on your bankruptcy forms, you could be charged with perjury and possibly go to jail. If you decide to file on your own, you must include everything on your court forms and answer all questions honestly. Where can I get help if I’m filing without a lawyer? Help DeskIn-person assistance for filing a personal Chapter 7 bankruptcy is available at:Pro Se Assistance DeskUnited States Bankruptcy Court of the Northern District of IllinoisThe Dirksen Federal Building219 S. Dearborn Street6th FloorChicago, IL 60604The Pro Se Assistance Desk provides help on a first-come, first-served basis. The Desk's staff is able to help a limited number of people each day, so you should arrive early to sign-in. The Desk is open from 9:30 a.m. to 12:30 p.m. Monday through Friday.Bankruptcy ClinicThe Legal Assistance Foundation (LAF) organizes a monthly two-session clinic for low-income individuals filing Chapter 7 bankruptcy on their own. Volunteer attorneys meet with individuals to discuss their specific cases and answer questions about the process and implications of filing bankruptcy.During the second session of the clinic, attorneys meet with individuals to review the clients' bankruptcy forms and any questions they had while filling out the forms. Look to the "News and Events" section on the right portion of your screen to find the next date for the bankruptcy clinic.Get pre-petition credit counseling. Bankruptcy law requires that you get pre-filing credit counseling within 180 days of filing for bankruptcy. You can go to any federally approved agency. A list of federally approved agencies can be found on the U.S. Trustee’s website. You may take the course in person, over the phone, or online. Get a certificate to show you completed the credit counseling and make a copy for the court. Fill out Exhibit D. Check the first box to show that you completed the credit counseling and have a copy of your certificate. Sign and date the form at the bottom. Exhibit D is available in the “Forms/Letters” section of this Guide. Complete the means test calculation to make sure you qualify for Chapter 7 bankruptcy. You must pass the “means test” to be eligible for Chapter 7 bankruptcy. If the sum of your current income minus your current expenses is too great, you can’t file for Chapter 7 bankruptcy. The Chapter 7 Statement of Currently Monthly Income and Means Test Calculation is available in the “Forms/Letters” section of this guide.For more information on how to complete the means test calculation, visit the online means test calculator.Complete your Voluntary Petition. Download the Voluntary Petition. The Voluntary Petition is available in the “Forms/Letters” section of this guide.Complete your Statement of Social Security Number. Download the Statement of Social Security Number. The Statement of Social Security Number is available in the “Forms/Letters” section of this guide.Complete your Statement of Financial Affairs. Download the Statement of Financial Affairs. The Statement of Financial Affairs is available in the “Forms/Letters” section of this guide. Read and Sign the Notice to Consumer Debtor(s). Recently, there have been many important amendments to the Bankruptcy Code. The Notice to Consumer Debtor(s) Under § 342(b) of the Bankruptcy Code tells you about some of these changes. Read the entire form before you sign it. Download the Notice to Consumer debtors. The form is available in the “Forms/Letters” section of this guide. File your Chapter 7 bankruptcy Petition. File your completed Voluntary Petition, Exhibit D (the certification of credit counseling), Statement of Current Monthly Income and Means-Test Calculation, Statement of Social Security Number, Statement of Financial Affairs, and Certification of Notice to Consumer Debtors at your local bankruptcy court.Central District: A list of clerks can be found on the Central District of Illinois Website. Click on “Office Locations” to find a courthouse near you.Northern District: A list of court locations can be found on the Northern District of Illinois Website. Southern District: A list of court locations can be found on the Southern District of Illinois Website. It will cost $306 to file for Chapter 7 bankruptcy. If you can’t pay this amount all at once, you can apply to pay the fee in installments. If you can’t afford to pay the fee at all, you can apply for a fee waiver. See the “Forms/Letters” section of this guide for information on how to ask to file for free or pay your filing fee in installment payments. Get a PACER account to monitor your case. Public Access to Court Electronic Records (PACER) is an electronic public access service that allows people to obtain case information online from Federal Appellate, District and Bankruptcy courts. You can learn more information on PACER's homepage.On PACER, you can access your bankruptcy documents anywhere, anytime, as long as you have internet access. You can more easily watch the progress of your case and related events.To use PACER, you need to register for an account. Anyone can have a PACER account. You do not need to be a lawyer to use PACER. There is no cost to register.For more information, read How to Get a PACER Account. Gather 60 days worth of pay stubs and find your last income tax return. Under bankruptcy law, you must give the trustee 60 days worth of pay stubs and a copy of your last income tax return to verify your income. To receive a transcript of your latest tax return, call 1-800-829-1040. Make several copies of each. You must give copies of the pay stubs and tax returns to any creditor who requests the information. Be sure to keep one copy for yourself. Complete your schedules (within 14 days of filing your bankruptcy petition). You must complete and file your schedules within 14 days of filing for bankruptcy. If you don’t, your case could be dismissed. Download the Summary of Schedules, Statistical Summary of Certain Liabilities and Related Data, Schedules A-J, and the Declaration Concerning Debtor’s Schedules. These forms are available in the “Forms/Letters” section of this guide. First, complete Schedules A-J. Once you’ve completed Schedules A-J, you can complete the Summary of Schedules. Fill in whether each schedule is attached and its number of pages. For Schedules A and B, fill in the total amount of assets for each schedule. For Schedules D-F, fill in the total amount of debt for each schedule. For Schedules I and J, fill in the current income and current expenditures. Add together the total number of pages, the total amount of assets and the total amount of debt.Complete your Statistical Summary. Fill in each amount. You may need to refer back to your Schedules A-J. On the Declaration Concerning Debtor’s Schedules, fill in the number of pages of schedules and summaries you will be filing with the court. This number should only include your Summary of Schedules, Statistical Summary of Certain Liabilities and Related Data, Schedules A-J, and the Declaration Concerning Debtor’s Schedules, not the petition or other forms. Sign and date the form. Leave the rest of the page blank.If you have secured debt, complete your Statement of Intention (within 30 days of filing). A secured debt is a debt that if it is not paid, the creditor can physically take back the property. If you have a secured debt, you must complete your Statement of Intention within 30 days of filing. The Statement of Intention tells the court, the trustee, and your creditors what you want to do with your property. You have three options with secured debt: Redeem: Redeeming property allows you to keep the property by paying the creditor the fair market value. If you owe more than the property is worth, the amount you owe is lowered to the fair market value. Usually, you have to “redeem” in a single payment, so you have to pay the entire price at one time. Reaffirm: Reaffirming the debt means you agree to pay the debt, even though it could be discharged or wiped out in the bankruptcy. Reaffirming the debt allows you to keep the property, but you must sign a reaffirmation agreement with the creditor that you will continue to pay the debt after your bankruptcy. You must file your agreement with the court. You have 60 days to change your mind. Surrender: Surrendering your property means you give the property back to the creditor. NOTE: If the amount you owe is greater than the value of the property, the creditor might still have a claim for the balance.Download the Statement of Intention. It is available in the “Forms/Letters” section of this guide. Use information from Schedule D to help you complete this form. Attend the Meeting of Your Creditors (“341 Meeting”). You must attend the Meeting of Your Creditors. The meeting will be held within 60 days of your filing. This meeting is sometimes called a “341 Meeting.” All of your creditors may attend and can ask you questions while you are under oath. You should bring a photo ID and your social security card with you. The meeting will probably be very informal and in most cases will last no more than 10 minutes, but you must attend the meeting. Creditors rarely attend, but you should be prepared to see them. If you don’t attend the meeting, your case will be dismissed.After the Meeting of Your Creditors, the trustee and your creditors have 30 days to object to any exemptions claims. The trustee and your creditors have 60 days to object to the discharge of any debt listed in your voluntary petition or schedules. Your creditors can object to your request to discharge, or wipe out, any of the following types of debt: Child supportAlimonyFinesMost taxesCriminal restitution ordersDebts due to fraud, theft or embezzlementDamages to another person caused by drunk driving or willful and malicious conductDebts from a property settlement in a divorceStudent loans unless paying back the student loan would be an undue hardshipSome other types of debtsYour creditors must file their proof of claims within 90 days of the Meeting of Your Creditors. A proof of claim is a document the creditors give to the court, telling the court how much you owe them. If the creditors do not file their proofs of claim within 90 days, they will not be able to share in the payments from your case. Complete post petition financial education. Recent changes to bankruptcy law have created one final step before you can get your debts discharged. You must complete a post petition course in personal financial management within 45 days of the Meeting of Your Creditors. You can go to any federally approved agency. A list of federally approved agencies can be found on the U.S. Trustee’s website. Get a certificate to show you completed the post petition financial management course and make a copy for the court. Download the Certification of Completion of Instructional Course Concerning Personal Financial Management. It is available in the “Forms/Letters” section of this guide. Receive your discharge. Once you have completed all of the steps above, you should receive your discharge 60 days after the Meeting of Your Creditors. Even if you receive your discharge, the trustee may move to set it aside if you don’t turn over nonexempt property or you commit other bankruptcy violations. Important note. Throughout the bankruptcy process it is extremely important that you check your mail regularly and carefully. This is how the court will communicate with you.

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