- Bankruptcy laws passed in 2005 require those considering bankruptcy to first complete a credit counseling course. The counseling requirement must be completed through a government-approved agency within the six month period prior to filing for Chapter 7 bankruptcy protection. You will be issued a certificate of completion to be presented to the court. At the end of your bankruptcy case, a second counseling session is required to learn personal financial management skills and officially complete your case.
- You must complete a means test to determine your eligibility for Chapter 7 bankruptcy. The test consists of establishing your debt-to-income ratio, or how much debt you have compared to how much income. Your current monthly income is compared to the median income in your state for a family of the same size. TotalBankruptcy.com and the U.S. Census Bureau website offer lists of median income limits per state based on the number of earners in a household. If your income is equal to or less than the median income, you qualify for Chapter 7 protection.
- Once you have finished credit counseling and passed the means test, you can file a petition with the bankruptcy court in your county. At this point, it may be advisable to seek the help of a bankruptcy attorney to ensure all appropriate forms are filed to avoid a dismissal of your case. After you file your petition, an automatic stay goes into effect putting a stop to all collection activities by creditors as well as legal actions. The court clerk notifies creditors you have filed a bankruptcy petition.
- Three to six weeks after you file your petition, you must attend the "341 meeting" or meeting of the creditors, at the court. Generally, creditors do not show up for this meeting. Typically, it is a meeting between you and the court-assigned bankruptcy trustee who oversees the selling of nonexempt property in your bankruptcy estate. You will answer the trustee's questions under oath about the contents of your bankruptcy schedules (liabilities and assets). Usually, this meeting is short in duration (less than half an hour) and is simply a chance for discovery of facts to take place.
- Following the 341 meeting, the trustee handles the sale of all nonexempt assets for payment to creditors. All unsecured creditors, such as credit card issuers, must have filed their claims with the court. You are discharged, and with the possible exception of a few debts, such as support payments or school loans, all debts will be eliminated.
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