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Various federal bankruptcy laws allows persons in extreme amounts of debt to get a "fresh financial start" by either reducing the amount of debt required to be repaid or extending the time period in which it must be paid.  Chapter 7 is the chapter of the bankruptcy governing liquidation of assets and discharge of debts.  Below is a summary of the basic process for filing bankruptcy under Chapter 7.  When you understand the basic process, you will have an easier time speaking with your attorney about your case and navigating through the complex court proceedings.     

STEP 1 – Go to Credit Counseling

Under the new bankruptcy law every person who anticipates filing for bankruptcy must complete a credit counseling program before their petition will be accepted by the court.  The program must be through an agency listed with the U.S. Trustee’s office and must be taken within the preceding 6 months prior to filing for bankruptcy.

STEP 2 – Evaluate if you qualify for Chapter 7

Under the new laws you may only file under Chapter 7 if you pre-qualify under the “Means Test.” If you do not qualify you may only file under Chapter 11 or Chapter 13.  In short the “Means Test” requires:

a) Your household income is at or below your state’s median level, or,
b)  Your disposable monthly income over the next five years is less than $6000.
To find this: take your monthly income minus expenses (disposable income) and multiply it by 60 (5 years of 12 months).  If you average less    than $100 a month in disposable income you qualify.
c) If your disposable income over 5 years is $6000 - $10,000 you must do another calculation using your non-priority unsecured debts.

*Contact an attorney for help determining whether you specifically will qualify. 

STEP 3 - File the Bankruptcy Petition

All bankruptcy filers must file the Voluntary Petition (Form B1).  You may only file the petition in one court but you have flexibility in choosing where to file.  You may file where you live, where you have your principal place of business or where you have principal assets located.  For example: if you live in California but own a business in Nevada you may file in either Nevada or California.  Even though all bankruptcy cases are heard in federal court you should contact an attorney to determine where to file - particularly regarding whether one state is more advantageous for you to file in than another.

STEP 4 – Pay the Required Filing Fee

The current court fees for filing a Chapter 7 bankruptcy are $299.

STEP 5 – File Your Schedule of Assets and Debts

Every debtor must file with the court certain forms called “schedules” which list the debtor’s property and claims by creditors.  A different form is required for different types of property and different types of creditors; such as real estate, cars, or credit cards.  You should contact an attorney to determine which schedules you are required to file.

STEP 6 - Attend the Pre-Trial Conference

Prior to having the court hear your case debtors must attend a conference with their creditors in an attempt to negotiate payment plans.  You can be accompanied by your attorney at the conference.

Conclusion

Bankruptcy is a complicated area of the law.  While bankruptcy allows for debtors to get rid of a deteriorating financial situation, debtors do not walk in and out with ease.  The laws treat secured debt and unsecured debt very differently and prioritize some forms of unsecured debt.  There are also several types of debt that are not dischargeable in bankruptcy.  An experienced bankruptcy attorney can help you best prepare for your bankruptcy case and may also be able to advise you on methods available for your situation besides filing for bankruptcy.