For debtors with no or few non exempt assets a Chapter 7 does indeed provide a relatively painless opportunity to start over. If there are no objections from creditors all their debts could be discharged as quickly as six months after filing a petition.
You are not eligible to file a Chapter 7 if you have filed bankruptcy within the past 7 years or if your income is such that you could repay debts with a Chapter 13 repayment plan.
Court costs to file a Chapter 7 are about $300 and depending on the complexity of your bankruptcy a typical attorney’s fee will be between $1000 and $2000. Most bankruptcy attorneys will ask for the fee prior to filing your petition.
Once you file your Chapter 7 petition the court will appoint a bankruptcy trustee to see that your creditors are paid as much as possible from your non exempt assets. The trustee will review the petition and make sure the forms you filed are complete. The trustee will sell any non exempt property for the benefit of your creditors. The trustee also has the power undo certain financial transactions which occurred the previous year to free up additional assets to liquidate.
Shortly after your petition is filed a creditor’s meeting will be scheduled. All creditors and interested parties will receive notice of the meeting. At the meeting the trustee will put you under oath and ask you about your bankruptcy and the information you filed with the court to support your petition. In a typical Chapter 7 this will be your only appearance in the bankruptcy court.
You will be required to surrender your non exempt assets to the trustee or provide cash equal to the value of the assets or the trustee may abandon the property if its value is deemed insignificant or it would be difficult to liquidate. Since most debtors filing Chapter 7 have only have exempt property or property worth very little few Chapter 7 filers end up surrendering any property unless it is collateral for a secured loan.
If you are current on your payments on a secured loan and if your equity in the secured asset is less than the bankruptcy exemption you are entitled to you will likely be able to keep the asset as long as you keep the payments current. If you are behind on the payments the creditor may repossess the asset to pay off the loan.
The information provided above is a general description of the rules and proceedings associated with a Chapter 7 bankruptcy filing. You should not rely on this information without seeking the advice of a bankruptcy attorney to ensure that you understand all the advantages and disadvantages of filing a bankruptcy in your particular circumstance.