When your debts are insurmountable then you can file for bankruptcy under chapter 7 of the Act. A Chapter 7 bankruptcy is a straight liquidation bankruptcy and can be filed once in a cycle of eight years.
When you file your bankruptcy, all your property standing in your name and income that you have will come under purview of the claims of the creditors. However, There are certain exemptions which can be protected and include interest in a car up to $2150, household furnishings, clothes, musical instruments, and the federal earned income tax credit, a certain portion of wages, almost all government benefits, some bank accounts, and possibly the equity in your home.
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However attending a credit counseling course is mandatory before you file for bankruptcy. The course may require you to pay a fee. On completion of the course, a list of all assets and property that you want exempt, including the names and addresses of creditors and the monies due is prepared. Your current income and expenses are also added to the statement.
The information on court approved forms is filed with the United States Bankruptcy Court, with a filing fee of $299. The court may approve a waiver of the fee in case you cannot pay. Alternatively you can pay in three installments over 84 day period after filing.
The next step is a meeting with the creditors. All creditors will be notified date, time and place for the hearing which is under Section 341. This hearing is generally to take place after about thirty days after filing for bankruptcy. Attendance is compulsory and all answers are on oath. In your absence the case can be dismissed.
No later than seven days before this hearing, you must give a copy of your most recent federal tax return to the trustee, or a transcript which you can obtain from the Internal Revenue Service. If you do not do this then again your case can be dismissed.
A trustee is appointed by the court and represents the creditors. He will determine whether you have properly completed all of the forms and listed all of your assets and your creditors. It is also his duty to take possession and sell any of your non-exempt property and distribute any proceeds of that property among your creditors. Within 45 days of the meeting with creditors, a debtor will have to undergo a second counseling course to be eligible for a discharge. This course is on personal financial management. In case every thing is OK and nobody objects, you can expect a discharge from your debts about 90 days after the meeting of creditors.
Though it is not mandatory for an individual or unincorporated sole proprietor, to have an attorney, yet completing all the documents and other formalities can be difficult. Hence hiring an attorney can be beneficial. On completion of the entire proceedings the Judge will sign the discharge papers.
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