Visiting a lawyer for bankruptcy consultation is important when considering filing one. Read on to understand bankruptcy Chapter 7 and how it works.
Are you scared, confused and uncertain about bankruptcy? Going to your first consultation can be nerve-wracking. You might feel judged or judge yourself harshly for being in the situation to begin with.
You’re not the only one. In 2017, there were over 2600 Chapter 7 cases in US Bankruptcy Court for the District of Nebraska.
What makes the process a little easier is knowing what to expect. Keep reading for a full rundown of the Chapter 7 bankruptcy process.
What is Chapter 7 Bankruptcy?
Chapter 7 is the most common type of bankruptcy. It’s a liquidation bankruptcy, which means you do not have the income to pay your debts. The purpose of Chapter 7 is to give you a fresh start and discharge debts such as credit card debts and medical bills.
In order to file for Chapter 7, you must pass a means test to prove you don’t have the disposable income to pay your debts.
In Chapter 7, you will have a trustee assigned to your case. The trustee can sell off property that is nonexempt in order to pay your creditors.
How is it Different from Chapter 13?
Chapter 13 bankruptcy is a reorganization of debt. It is typically filed by people with some discretionary income to pay part of their debt.
In Chapter 13 bankruptcy, you agree to pay at least a portion of your debt on a payment plan. The payment plan is usually three to five years.
Regardless of the type of bankruptcy you file, you cannot discharge certain types of debt. These include student loans, taxes, child support and alimony.
Schedule Your First Bankruptcy Consultation
To get the process started, you’ll need to reach out to a bankruptcy attorney. In your first appointment, you and your attorney review your situation to determine the best course of action. If you decide bankruptcy is best for you, you’ll have to retain your attorney.
If you file for Chapter 7, you’re required to take a class or meet with an approved credit counselor. This became a requirement after 2005. You’ll need to undergo credit counseling prior to filing your petition with the court.
This can be done online, over the phone or in person. You will be required to produce proof you went through counseling.
Gather Paperwork and File
For your attorney to represent you to his or her best ability, you need to give them the most accurate information possible.
If you’re eager to get the process started, you can bring your paperwork and retainer fee to your first bankruptcy consultation.
That means you’ll need to gather paperwork. You will need:
- Tax returns for the last 2 years
- 6 months of pay stubs or invoices
- All your bills
- Credit reports
- Documentation for mortgages, savings and investments.
Your attorney may need more documentation, but this will get the process started.
As your attorney creates the paperwork to file on your behalf, there may be additional questions. Be prepared to answer them as soon as you can so the process isn’t delayed.
Once your paperwork is compiled and your petition is filed with the court, an automatic stay is in place. That means that most collections activity against you will stop temporarily.
When you file for Chapter 7, you will have a trustee appointed to your case. The trustee’s job is to review your paperwork and determine if there are nonexempt assets that can be sold to pay off your debt.
Bankruptcy law falls under federal law, but there are a few variations from state to state. For example, there are exemptions that differ that allow you to protect some assets.
In Nebraska, the most common exemptions are:
Homestead Exemption: As much as $60,000 of the equity of your home and the land it sits on, provided that the land isn’t more than two lots.
Insurance Exemption: Annuity or life insurance up to $100,000.
Personal Property: This includes clothes, books, household goods and other possessions and a limit of $1,500 in furniture.
Wages: Up to 30 times the minimum wage or 75% of earnings that have not been paid.
Trade Tools: If you have equipment you use for your work, up to $2,400 is exempt.
There’s not a specific exemption for vehicles, but you may be able to use the wildcard and/or trade tools exemptions. This is a conversation to have with your attorney.
Married couples who file joint bankruptcy can double the amount of these exemptions.
Meet with Creditors
After you file your petition, the bankruptcy court will set a date to meet with your creditors, usually within a month of filing.
You’re required to appear in person, although your attorney will be there with you. Prior to the meeting, you and your attorney may have another consultation to make sure you’re prepared.
Basically, the trustee will meet ask you questions about your paperwork and financial situation. The trustee wants to be sure you represented yourself honestly.
The trustee will also make sure you’re aware of the consequences of bankruptcy, such as the impact on your credit report. They’ll make you aware of the different bankruptcy options.
Creditors may appear at this meeting and ask questions too.
During the first 60 days after you meet with your creditors, they can dispute or challenge your discharge. At the end of the process, usually 60 to 90 days after the meeting, your debts will be discharged
The vast majority of cases are discharged. Once your case is discharged, you no longer have personal liability for your debts. The slate is wiped clean.
Free Bankruptcy Consultation
If you’re not sure if Chapter 7 is right for your financial situation, it will help if you meet with a bankruptcy lawyer who can determine if you should file for bankruptcy.