How to File for Chapter 7 Bankruptcy
The weight of debt has become so overwhelming that it may no longer seem possible to dig yourself out. Creditors are threatening to sue, your wages are being garnished, and you find it impossible to make ends meet. Your financial stress seems insurmountable and is impacting your ability to function.
If any or all of these situations describes your current life, it may be time to do something more drastic about your debt — it may be time to declare bankruptcy.
This general guide will give you an idea of what to expect. Please note that since bankruptcy laws vary by state, you will still need to consult with an attorney in your state to get specific guidance.
In this general guide, you’ll find out:
How Chapter 7 bankruptcy works
Bankruptcy is a method of discharging or reorganizing debt through the federal court. Depending on the type of bankruptcy you choose to file, you may have your debt canceled and your nonexempt assets, such as cars, timeshares, and boats, liquidated to pay creditors. You may also have debt balances renegotiated to meet a three- to five-year repayment plan.
Chapter 7 bankruptcy is called a liquidation, because it requires a debtor’s nonexempt assets to be sold to pay off creditors. Even if the assets aren’t enough to settle the debt, or it’s a “no asset” bankruptcy with no assets to sell, the eligible debts are discharged at the end and the debtor’s slate is wiped clean.
When to consider filing Chapter 7
Debt resolution doesn’t just entail a single action. Instead, debtors have a range of options, from defaulting to consolidation to bankruptcy. According to Marie F. Martin, a consumer bankruptcy attorney based near St. Paul, Minn., there are a few criteria that could indicate bankruptcy as a viable option for a debtor.
“Big picture, the things to look for are if they’re getting letters from creditors saying they’re going to take them to court, if they find themselves using credit cards to pay for expenses like gas and food because they don’t have cash available, [and] if they’re borrowing money from friends and relatives to meet their essential needs,” said Martin.
Once you’ve chosen bankruptcy to deal with unmanageable debt, you have to decide whether Chapter 7 is best or if there’s a better choice. According to Chris D. Barski, a bankruptcy attorney from Scottsdale, Arizona, that will often depend on your assets and income. “If someone has nonexempt property they want to keep,” said Barski, “then you want to [suggest] Chapter 13 versus the 7.”
What kind of debt can you get rid of?
In evaluating bankruptcy as an option, you’ll also want to understand what kinds of debt can and can’t be discharged, because if the bulk of your debt is not dischargeable, you may want to come up with an alternate solution.
Dischargeable debt includes:
- Medical bills
- Consumer debt
- Personal loans
- Certain lawsuit judgments
- Lease and contract obligations
- Child support
- Certain taxes
- Death and personal injury claims from a DUI
- Fraudulently obtained funds
- Debt from creditors not listed in the bankruptcy
- Most student loan debts
How to file for Chapter 7 bankruptcy
|Filing for Chapter 7 Bankruptcy|
|Credit counseling briefing||Choose an approved provider in the state you’re filing in within the 6 months preceding your filing|
|Find your court||Depends on the district court your state wants you to file in|
|Secure any local forms that are required for your filing||These are forms that are specific to your state and will generally be listed on the website for your local court|
|Form B2010||Notice Required by 11 U.S.C. § 342(b) for Individuals Filing for Bankruptcy|
|Form 101||Voluntary Petition for Individuals Filing for Bankruptcy|
|Form 121||Your Statement About Your Social Security Numbers|
|Form 119||Bankruptcy Petition Preparer’s Notice, Declaration and Signature|
|Form 2800||Disclosure of Compensation of Bankruptcy Petition Preparer|
|Form 103A (when relevant)||Application for Individuals to Pay the Filing Fee in Installments|
|Form 103B (when relevant)||Application to Have the Chapter 7 Filing Fee Waived|
|Form 101A (when relevant)||Initial Statement About an Eviction Judgment Against You|
|Form 101B (when relevant)||Statement About Payment of an Eviction Judgment Against You|
|Form 106Dec||Declaration About an Individual Debtor’s Schedules|
|Form 106Sum||A Summary of Your Assets and Liabilities and Certain Statistical Information|
|Forms 106A-J||Schedules to 106 listing property, debtors, income, leases, income, expenses and more|
|Form 107||Your Statement of Financial Affairs for Individuals Filing for Bankruptcy|
|Form 2030||Disclosure of Compensation of Attorney For Debtor|
|Form 108||Statement of Intention for Individuals Filing Under Chapter 7|
|Form 122A-1||Chapter 7 Statement of Your Current Monthly Income|
|Form 122A-2||Chapter 7 Means Test Calculation|
|Form 122A-1Sup (when relevant)||Statement of Exemption from Presumption of Abuse Under §707(b)(2)|
Before you file, there are a few preliminary steps to take.
The first is to get a credit counseling briefing from an approved provider in the state you’re filing in, which needs to be done within the six months preceding your filing. This will go over some of the debt-resolution options you have beyond bankruptcy. If you are filing with your spouse, then you must both get this briefing.
The price of the class can range, with some providers offering online classes for as low as $14.95 per household and others providing sessions with a live credit counselor for as much as $50.00 per person. In some cases, the cost of the completion certificate may be extra; in addition, note that there is also a second course taken after filing and setting meetings with creditors, and this course better prepares you for your future financial journey.
Once you’ve completed credit counseling, your next move is to find out what court you need to file in; this will depend on the district courts in your state. Once you’ve found the right court, you need to secure any local forms that are required for your filing. These are forms that are specific to your state and will generally be listed on the website for your local court.
Your final pre-petition step is to review Form B2010, a notice that helps determine what bankruptcy chapter you are eligible for.
Forms for the initial petition
Once you’ve taken care of those items and verified your eligibility for Chapter 7, the next step is to officially file for bankruptcy. This step may require the following forms:
- Form 101: Voluntary Petition for Individuals Filing for Bankruptcy
- Form 121: Your Statement About Your Social Security Numbers
- Form 119: Bankruptcy Petition Preparer’s Notice, Declaration and Signature
- Form 2800: Disclosure of Compensation of Bankruptcy Petition Preparer
You can also include several optional forms, when relevant:
- Form 103A: Application for Individuals to Pay the Filing Fee in Installments
- Form 103B: Application to Have the Chapter 7 Filing Fee Waived
- Form 101A: Initial Statement About an Eviction Judgment Against You (individuals)
- Form 101B: Statement About Payment of an Eviction Judgment Against You (individuals)
In addition, you are asked to include a full list of all your creditors, which should be formatted as specified by your court, and your credit counseling certificate of completion.
Within 14 days of filing
The next set of forms needs to be submitted within 14 days of filing. They are:
- Form 106Dec: Declaration About an Individual Debtor’s Schedules
- Form 106Sum: A Summary of Your Assets and Liabilities and Certain Statistical Information (individuals)
- Forms 106A-J: Schedules to 106 listing property, debtors, income, leases, income, expenses and more
- Form 107: Your Statement of Financial Affairs for Individuals Filing for Bankruptcy (individuals)
- Form 2030: Disclosure of Compensation of Attorney For Debtor
- Form 108: Statement of Intention for Individuals Filing Under Chapter 7
- Form 122A-1: Chapter 7 Statement of Your Current Monthly Income
- Form 122A-2: Chapter 7 Means Test Calculation
- Form 122A-1Sup (when relevant): Statement of Exemption from Presumption of Abuse Under §707(b)(2)
You will also need to submit copies of all pay stubs and other payment remittances you have received during the 60 days that precede your bankruptcy filing. Check with your court to see if you need to submit these to the court or the trustee.
How chapter 7 impacts your credit
A bankruptcy is a negative factor in your overall FICO Score for as long as it’s on your report. However, the weight of the impact will wane over time — in fact, our research shows that after just five years, about 75% of those who filed for bankruptcy saw their credit score rise to at least 640, making them eligible for loans.
Bottom line: Getting help before filing
The decision to declare bankruptcy is one of the hardest a consumer can make, and it has consequences that last a while. Those two reasons and numerous others make it important for consumers to first consult with an attorney and credit counselor to ensure there’s no better action to take.
As Martin notes, it can feel embarrassing to open up to someone about your financial situation, but you shouldn’t allow those feelings to stop you from getting expert advice — advice that comes during a confidential, free consultation that you don’t have to act on. Most importantly, as Martin said, “You don’t want to necessarily rely on information from people you owe money to. It’s better to get information from someone who’s in a more neutral position.”
You can find attorneys in your area by searching your county bar association. When searching, Barski advised consumers to look for an attorney with a broad range of experience. “If you don’t have a consumer attorney that does all the chapters, you need to be cautious,” said Barski. He said that without having done all the chapters, an attorney may not recognize when Chapter 7 isn’t the best fit for a debtor.