Defining Chapter 7
Chapter 7 is often called a clean slate type of bankruptcy because it involves the sale of all your assets with the proceeds thereof paid to creditors. However, that does not mean that you will be left with absolutely nothing. The law provides for some exceptions in the assets you sell for payment purposes, therefore giving you the chance to keep a family home or something similar.
Chapter 7 Steps and Accompanying Expenses
There are two ways you can file for a Chapter 7 Bankruptcy: on your own or with the help of a bankruptcy attorney. Regardless of which method you prefer, however, the same steps will be taken:
- Analysis of your debts in order to find out whether your liabilities outrank your income and amount of disposable asset. Find out if you are eligible to file for a Chapter 7 Bankruptcy.
- If you are indeed eligible, then the next step is to go through a credit counseling process. Credit counseling is mandatory – this is something the court will look for during your petition. Credit counseling must be done within 6 months before filing the bankruptcy forms.
- Obtain the forms needed for a Chapter 7 Bankruptcy and fill them in. Make sure that the papers are in proper order and correctly answered. Fortunately, there are currently applications designed to provide this kind of help. A Bankruptcy attorney should also be able to assist you through the process.
- Upon filing of the petition, you will be given an automatic stay and a trustee. An automatic stay basically prevents creditors from going after the person in debt during the deliberation of the Bankruptcy petition. A trustee is the person who oversees the bankruptcy relations between the petitioner and the court.
- What follows next is the meeting of the creditors although this is not always done. Basically, a deliberation between you and the creditors is set up in order to talk about the situation and determine if the petition is fair and just to everyone involved.
- If you are eligible for Chapter 7, the court will accept your petition as well as provide a schedule for the sale of your property and the distribution of the proceeds to the creditors.
- The trustee is the one responsible for the distribution of said proceeds. During this step, you will also be asked to figure out exactly what properties are exempt and may be kept under your name. Debts with collaterals or securities will also be discussed.
- Nowadays, a financial management course is required of petitioners before a final ruling is made.
- Once approved and completed the course, you will be given a discharge from all your debts and start anew. Keep in mind that the details of your bankruptcy filing will be recorded in your credit history for the next 10 years.
Cost of Filing for Chapter 7
The cost of filing a Chapter 7 Bankruptcy is $335 and this is usually paid upon submission of the bankruptcy forms to the court. Additional fees may be incurred but these are indirectly related to the process of filing the petition.
Understand that the cost of filing for a Chapter 7 may change from time to time as the courts attach a different value depending on the circumstances. Chapter 12 and Chapter 13 fees are typically cheaper but not that much.
The credit counseling and financial management courses may also come from your own pocket. The former costs around $30 while the latter is set at $50. However, it is possible to obtain these two courses even without payment since they are a requirement by the court. In most instances, all you have to do is inform the company providing the course and they may offer their services for free or at a reduced cost.
Waiver of Fee
It might seem too much from the state to require payment for processing the papers evidencing your insolvency. After all, how can you meet payments if your liabilities are obviously well beyond your assets.
The good thing is that your fees may be waived or at the very least, postponed or scheduled to meet your specific capability for payment. This can be done through an installment process and typically granted when asked of the court. The process is as follows:
- Obtain the Form 3A or the Application and Order to Pay Filing Fee in Installments.
- Fill in the form with your proposal for the schedule of payment.
- The proposed payment must not be more than 120 days after filing the petition and must not exceed four installments.
Requisites of Fee Waiver
Understand that the court granting a fee waiver is different from scheduling payments. The former means that you do not have to pay anything while the latter simply means your payment will be done in small batches. For you to be allowed a fee waiver, you must meet the following qualifications:
- You must be unable to make the payment;
- You fall below the 150% poverty line. This particular data is available through the bankruptcy court.
If you do not meet both requirements, there is no other recourse but to pay the fee, albeit do so in installments.
Cost of a Chapter 7 Attorney
The costs mentioned above are related to the actual process of filing for a Chapter 7. The fee of an attorney, however, is a separate cost and depends largely on: (1) the scope of the service you need and (2) your location in filing for bankruptcy.
A study involving data during 2009 reveals that the average attorney fee is at $1,000 with Idaho set at $700 while Arizona lawyers charge as much as $1500 for their service. It is therefore crucial to find out exactly how much the bankruptcy attorneys are charging in your area. Understand that although the cost of the lawyer is a good indicator of experience, expensive does not necessarily follow good service. Take your time in choosing a lawyer or opt for reduced or even free lawyer service through the many bankruptcy companies offering them today.