Deciding to file for bankruptcy is a challenging decision. You need legal assistance when determining whether to file for bankruptcy. You must consider certain factors before, during, and after filing for bankruptcy. It is only by following the process and addressing these factors that bankruptcy will work for you.
Below is a detailed account of how to file for bankruptcy:
a) Analyze Your Debt
In Chapter 7 bankruptcy, particular debts could be "discharged," or erased. This means that the creditor can no longer pursue collection of the debt and the debtor is no longer legally obligated to pay it.
Some examples of debts that could be dischargeable in Chapter 7 bankruptcy include the following:
- Credit card debt — Credit card debts are generally dischargeable in Chapter 7 bankruptcy.
- Medical bills — Medical bills may also be dischargeable in Chapter 7 bankruptcy.
- Personal loans — Personal loans, like signature loans or loans from family members.
- Payday loans — Short-term Payday loans, high-interest loans.
- Unsecured debts — Debts not backed by collateral.
Non-dischargeable debts cannot be erased and the debtor is still responsible for paying them. Non-dischargeable debts are considered a priority by the bankruptcy court. Thus, they cannot be eliminated through bankruptcy. Examples of non-dischargeable debts considered in Chapter 7 bankruptcy include:
- Most federal, state, and local taxes are non-dischargeable in Chapter 7 bankruptcy if they meet specific criteria like being less than three years old.
- Child support and alimony — Child and alimony payments are generally non-dischargeable in Chapter 7 bankruptcy.
- Student loans — Student loans could be non-dischargeable in Chapter 7 bankruptcy, with some exceptions.
- Debts incurred through fraud or misrepresentation.
- Court-ordered fines and penalties — Court-ordered fines and penalties, for example, those related to a DUI or criminal conviction, may be non-dischargeable in Chapter 7 bankruptcy.
b) Determining Your Exemptions
When you file for Chapter 7 bankruptcy, you could keep specific properties, depending on your exemptions. Exemptions are laws that allow you to protect specific categories of property from being seized and sold to pay your debts.
To determine your exemptions, you will need to consider California’s laws, as exemptions can vary significantly from state to state. Some states allow you to use federal exemptions, while others have exemptions specific to the state. California does not allow you to choose between state and federal exemptions.
Here are some examples of properties that exemptions protect in Chapter 7 bankruptcy:
- Your home — In many states, California included, you could use the homestead exemption to protect your home from being seized in Chapter 7 bankruptcy. The exemption amount varies depending on the county you reside in and the length of time you have owned the home.
- Your vehicle — You could protect your vehicle from being seized in Chapter 7 bankruptcy by using the vehicle exemption.
- Your personal property, including furniture, clothing, and household goods
- Your retirement accounts — California allows you to protect your retirement accounts, like 401(k)s and IRAs, from being seized in Chapter 7 bankruptcy by using the retirement account exemption.
Note: Exemptions are subject to limits and might not protect all of your property from being seized in Chapter 7 bankruptcy. It is a good idea to consult with a bankruptcy attorney to understand the specific exemptions available to determine which of your assets are protected.
c) Your Eligibility for Bankruptcy
To be eligible to file for Chapter 7 bankruptcy, you must meet certain income and debt criteria. The primary eligibility requirement for Chapter 7 bankruptcy is a means test, which calculates your income and expenses to determine if you can pay your debts.
The Chapter 7 means test compares your household earnings to the median income for your state and family size. If your household earnings fall below the median, you are generally eligible to file for Chapter 7 bankruptcy. If your family income is above the median income, you could still file for Chapter 7 bankruptcy if you demonstrate that your expenses are high enough to leave you with little or no disposable income.
To determine your eligibility for Chapter 7 bankruptcy using the means test, you will need to gather financial information, including your income and expenses. Your earnings include all sources of income, for example, wages, salaries, tips, and self-employment income. Your expenditures include all necessary living expenses, like housing, food, utilities, transportation, and healthcare.
The means test ensures that only individuals and families with limited income and assets can file for Chapter 7 bankruptcy. It is intended to prevent individuals and families who can pay their debts from using Chapter 7 bankruptcy to discharge their debts.
If you cannot pass the means test, you could file for Chapter 13 bankruptcy, which is a reorganization bankruptcy that allows you to pay certain of your debts over three to five years. It is a good idea to consult with a bankruptcy attorney to understand the specific requirements of the means test and to determine if you are eligible to file for Chapter 7 bankruptcy.
d) Take a Credit Counseling Course
One of the requirements for filing for Chapter 7 bankruptcy is to complete a credit counseling course. This course is designed to help individuals and families understand their financial situation and explore options for resolving their debts.
To take a credit counseling course, you must find a credit counseling agency approved by the United States Trustee's Office. You can search for approved agencies on the Trustee's website or by contacting your local bankruptcy court.
The credit counseling course is typically a one-hour session that can be completed online, by phone, or in person. During the course, a credit counselor will review your financial situation and help you understand your options for resolving your debts. The counselor could also provide you with a budget plan and other resources to help you manage your finances.
You must complete the credit counseling course within 180 days before filing for Chapter 7 bankruptcy. Once you have completed the course, you will receive a certificate of completion that you will need to provide to the bankruptcy court when you file your bankruptcy petition.
Note: A credit counseling course is mandatory for all individuals and families who want to file for Chapter 7 bankruptcy. Please complete the course to avoid a dismissal of your bankruptcy case.
e) Filing Chapter 7 Bankruptcy Forms
To file for Chapter 7 bankruptcy, you must fill out and file several forms with the bankruptcy court. The documents you will need to complete, depend on your specific circumstances, including the following:
- Voluntary petition — This is the main bankruptcy form, which includes general information about your debts, assets, and income.
- Statement of financial affairs — This form requires you to disclose information about your financial transactions, including your debts, assets, and income.
- Schedule of assets and liabilities — You list all assets and debts under this form.
- Schedule of current income and expenses — This form requires you to provide detailed information about your current income and expenses.
- Statement of intent — This form requires you to state what you intend to do with specific property types, like a home or vehicle.
- Statement of social security number — This form requires you to provide your social security number to the bankruptcy court.
To fill out and file the bankruptcy forms, you will need to follow the specific instructions provided by the bankruptcy court. It is a good idea to review the instructions carefully and to seek help from a bankruptcy attorney if you have any questions.
Once you have completed the forms, you must file them with the bankruptcy court and pay any required filing fees. After you file your bankruptcy petition, the court will review your case and issue several notices, including scheduling your case for a Meeting of Creditors with your assigned Trustee.
f) Submitting Documents to the Chapter 7 Bankruptcy Trustee
After you have filed for Chapter 7 bankruptcy, you must submit certain documents to the Chapter 7 bankruptcy trustee. The Chapter 7 bankruptcy trustee is a neutral party appointed by the bankruptcy court to oversee the administration of your bankruptcy case.
The documents you will need to submit to the Chapter 7 bankruptcy trustee will depend on your specific circumstances. Still, they include the following:
- Tax returns — You will need to provide the Chapter 7 bankruptcy trustee with copies of your federal and state tax returns, likely the last filed return or possibly multiple returns.
- Pay stubs — You must provide copies of your pay stubs for up to 6 months.
- Bank statements — You will need to file copies of your bank statements for up to six months.
- Financial statements with detailed information about your assets, liabilities, and income
- Proof of insurance — You will need to provide the Chapter 7 bankruptcy trustee with proof of insurance for any assets you intend to keep, like a home or vehicle insurance cover.
It is important to submit these documents to the Chapter 7 bankruptcy trustee as soon as possible after you file for bankruptcy. Failure to provide the required documents can result in delays in the bankruptcy process or even the dismissal of your bankruptcy case.
g) Meet With the Chapter 7 Bankruptcy Trustee
After you have filed for Chapter 7 bankruptcy, you will be required to meet with the Chapter 7 bankruptcy trustee.
The meeting with the Chapter 7 bankruptcy trustee, also known as the "meeting of creditors," is typically held about a month after you file for bankruptcy. The purpose of the meeting is for the Chapter 7 bankruptcy trustee to ask you questions about your financial situation and to review the documents you have provided.
During the meeting, the Chapter 7 bankruptcy trustee could ask questions about your debts, assets, and income. You will need to provide accurate and complete answers to these questions. The Chapter 7 bankruptcy trustee could also ask you to bring certain documents to the meeting, like bank statements or pay stubs.
Preparing for the meeting with the Chapter 7 bankruptcy trustee is necessary. Review the documents you have provided and familiarize yourself with your financial situation. It is a good idea to work with a bankruptcy attorney to ensure that you are prepared for the meeting and have legal representation.
The meeting with the Chapter 7 bankruptcy trustee is typically the only time you will need to appear in court during the bankruptcy process. However, if the Chapter 7 bankruptcy trustee has concerns about your case, the courts could require you to attend additional hearings or meetings.
h) File Needed Objections and Motions
During the Chapter 7 bankruptcy process, you need to file objections and motions to address specific issues or disputes that arise. An objection is a legal document filed with the bankruptcy court to challenge a particular action or decision in your bankruptcy case. A motion requests the bankruptcy court to take a specific action or make a ruling.
Here are some examples of when you need to file objections or motions in a Chapter 7 bankruptcy case:
- Objecting to the inclusion of debt — If you believe that a debt should not be included in your bankruptcy case, you need to file an objection to the inclusion of the debt.
- Objecting to the discharge of debt — If the trustee or creditors believe that a debt should not be dischargeable in your bankruptcy case, they will file an objection to the discharge.
- Requesting permission to sell property — If you want to sell property that is part of your bankruptcy estate, you could file a motion to seek permission from the bankruptcy court.
- Requesting a hardship discharge — If you cannot complete the bankruptcy process due to circumstances beyond your control, you need to file a motion for a hardship discharge.
It is crucial to carefully review the specific requirements for filing objections and motions in your bankruptcy case, as they can vary depending on your particular circumstances and the laws affecting your case.
i) Complete a Debtor Education Course
A debtor education course is a legal, financial management course imposed on individuals filing for Chapter 7 bankruptcy. The course aims to help individuals understand how to manage their finances and avoid future financial difficulties.
You must complete the debtor education course before the individual's bankruptcy case is closed. You can take the course in person or online; it typically lasts about two hours.
The course covers various topics, including budgeting, saving money, using credit responsibly, and managing debt. It also includes information on how to rebuild credit after bankruptcy and avoid future financial pitfalls.
Upon completion of the course, you will receive a certificate of completion, which you must file with the bankruptcy court. The debtor education course is separate from the pre-bankruptcy credit counseling requirement, which you must also complete before filing for bankruptcy.
Contact a Bankruptcy Attorney Near Me
If you are considering bankruptcy, it is usually a good idea to speak with a bankruptcy attorney. A bankruptcy attorney can help you understand the bankruptcy process and your options for debt relief and can also represent you in court if you decide to file for bankruptcy. Count on the Sacramento Bankruptcy Lawyer to help you with all your bankruptcy needs. Contact us at 916-800-7690 for more information.
