How to File for Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most popular form of bankruptcy relief for individuals. It's a court-supervised process that allows individuals to eliminate most types of debt and receive a fresh start. It is also the most common type of personal bankruptcy filed in the United States.

How Filing for Chapter 7 Bankruptcy Works

The basic idea behind Chapter 7 is that you can keep the property you need to maintain a home and employment. It's called a "liquidation" bankruptcy because unnecessary luxury items are sold to pay creditors. In exchange, qualifying debts like credit card balances, medical debt, and personal loans are "discharged" or eliminated. Most Chapter 7 bankruptcy cases take about four to five months to complete.

The Chapter 7 Bankruptcy Trustee

When you file for Chapter 7, the bankruptcy court appoints a Chapter 7 trustee to administer the case. The trustee's primary duties include verifying the filer's identity and disclosures in the bankruptcy paperwork, as well as finding funds for creditors.

Keeping Property in Chapter 7

Even though the trustee's job is to ensure that your creditors get paid as much as possible, many Chapter 7 debtors give up little, if any, property. Whether you can keep all property in Chapter 7 will depend on whether your state's bankruptcy exemption laws allow you to "exempt" or protect everything.

If bankruptcy exemptions cover your property equity, you get to keep it. The trustee sells anything not covered by an exemption, or "nonexempt" property, for the benefit of creditors. The Chapter 7 trustee's payment includes a percentage of the asset proceeds sold for creditors.

Keeping a House or Car in Chapter 7

The requirements for keeping a house or car in Chapter 7 are twofold. To keep the property from the trustee, you must be able to exempt all of the equity, as discussed above. You must be current on loan payments to keep the property from the lender. Here's why.

Mortgages and car loans are secured debts. You agreed that the lender could take the property if you didn't pay. Because of this, you can wipe out the loan balance in Chapter 7. However, the lender will have the right to take the collateral, sell it, and apply the funds to the balance owed if you're behind on the payment.

Other options include "surrendering" or giving back the property or "redeeming" it by paying the fair market value (more below). If you can't meet these qualifications, you'll want to learn how Chapter 13 can help debtors keep secured property.

What Are the Differences Between Bankruptcy Chapters 7 and 13?

The primary difference between the two chapters is that Chapter 13 filers pay their monthly "disposable" income to creditors through a three- to five-year repayment plan. Chapter 7 involves a much quicker process and is over in a matter of months.

Chapter 13's plan allows filers to save homes from foreclosure and cars from repossession, and sometimes, filers can even eliminate a junior home mortgage or HELOC—benefits not offered in Chapter 7.

Learning more about the differences between Chapter 7 and Chapter 13 will help you understand why Chapter 7 usually works best for lower-income individuals and when Chapter 13 is the best—or only—option.

Qualifying for Chapter 7 Bankruptcy

Not everyone is eligible for a Chapter 7 debt discharge. You must pass the "means test" to qualify.

If your income is lower than the state's median income for a family the same size as yours, you automatically pass the means test. If it exceeds the state median, you'll get another chance to pass by subtracting allowed expenses. You'll qualify for Chapter 7 if you don't have enough left over to make a meaningful payment to your creditors through a three- to five-year Chapter 13 repayment plan.

Remember that even if you qualify, the court will still evaluate whether you have significantly more income than you need to pay your monthly bills. The court will compare the figures on Schedule I: Your Income to those on Schedule J: Your Expenses to determine whether enough remains to make a meaningful payment to creditors (more below).

Example. Suppose you make $5,000 monthly, but your monthly budget shows you need only $4,500. The court might order you to pay creditors $500 monthly through a Chapter 13 repayment plan, even if you pass the Chapter 7 means test.

Find out which expenses will help you pass the means test.

Completing Chapter 7 Bankruptcy Forms and Schedules

Below, we discuss the most common forms and schedules included in a Chapter 7 bankruptcy petition. However, depending on where you live, your local bankruptcy court might require additional forms.

Voluntary Petition for Individuals Filing for Bankruptcy

The Voluntary Petition for Individuals Filing for Bankruptcy or "petition" is the introductory form where you disclose your personal information, such as your name and address. You'll also provide information about prior bankruptcies filed within the last eight years and whether you're operating a business. You must also complete a credit counseling course with an approved agency within the180 days before filing and attach the completion certificate to the petition.

Schedule A/B: Property

On Schedule A/B, you'll disclose any ownership interests in real and personal property. Real property includes your house, condominium, land, or any other type of real estate you own. When you complete Schedule A/B, provide the description and location of the property, the nature and value of your interest, and the number of secured claims (such as mortgages or other liens) encumbering the property.

Personal property—or property other than real estate—includes assets such as cash, bank accounts, household goods, clothing, insurance policies, stocks, bonds, annuities, retirement accounts, cars, and musical instruments. When determining value, use replacement value or the retail cost to purchase an item similar in age and condition.

Schedule C: The Property You Claim as Exempt

Chapter 7 filers can keep "exempt" property. If an asset is exempt, it is safe. The property you can keep in Chapter 7 bankruptcy depends on your state's exemption laws and whether they allow you to use state or federal bankruptcy exemptions. You'll list the exemption law citation for all exempt items on this form. If unsure whether your property is exempt, talk to a bankruptcy attorney.

Schedule D: Creditors Who Hold Claims Secured By Property

Schedule D is where you list all of the secured claims encumbering your property. A "secured claim" is a loan or obligation guaranteed by a lien on property. If you fail to pay the obligation, called "defaulting," the creditor typically has a right to take back the property through foreclosure or repossession. The most common examples of secured claims include your mortgage and car loan.

Schedule E/F: Creditors Who Have Unsecured Claims

Schedule E/F is where you list all of your remaining debts, such as credit card bills, personal loans, medical bills, and other debt that doesn't belong on Schedule D. You also list claims that must be paid first when money is available, called "priority claims." Examples include certain taxes and domestic support obligations, such as alimony or child support, and some aren't dischargeable—you'll remain responsible for paying any balance remaining after bankruptcy.

You'll list all remaining debts as general unsecured claims, including any "deficiency balance" after a foreclosure or repossession. If you forget to list a debt, it might not be discharged, so compare the debts listed to those in your credit report.

Schedule G: Executory Contracts and Unexpired Leases

Executory contracts and unexpired leases are contracts both parties remain obligated to perform, such as car leases, license agreements, contracts to buy or sell real estate, and personal property leases. When you file for bankruptcy, the trustee can assume the contract or lease if it will generate value for your creditors. However, the trustee won't assume it unless you are paying below market rates or the trustee can otherwise profit from it on behalf of creditors.

Schedule H: Your Codebtors

If you have codebtors on any of your debts, you must list them on Schedule H. However, your discharge eliminates your liability for the debt, not your codebtor's. Your creditors can still go after a codebtor even after you discharge the debt. Learn more about how bankruptcy affects joint Accounts and cosigners.

Schedule I: Your Income

When you file for Chapter 7 bankruptcy, you must inform the court about your approximate monthly budget. Schedule I is where you disclose your employment information and income. Follow the instructions on the form to list your income from each source on the appropriate line. Also, if you are married but filing for bankruptcy without your spouse, you must still include your nonfiling spouse's income on Schedule I.

Schedule J: Your Expenses

Schedule J works with Schedule I to give the court details about your current monthly budget. Schedule J is where you list all of your monthly expenditures. The expenses on Schedule J are deducted from the net income listed on Schedule I to determine your monthly disposable income. If you don't live in the same household with your spouse, you can deduct the additional living expenses on Schedule J-2: Expenses for Separate Household of Debtor 2.

You should understand that your disposable income can disqualify you for Chapter 7 even if you pass the means test. If your budget shows significant monthly disposable income, the Chapter 7 trustee will recommend that the bankruptcy court convert it from Chapter 7 to Chapter 13.

A Summary of Your Assets and Liabilities and Certain Statistical Information

Once you complete the schedules, you'll summarize the totals on this form to give the court and trustee a snapshot of your financial situation.

Declaration About an Individual Debtor's Schedules

After you complete your bankruptcy schedules, you must declare that your disclosures are true and correct to the best of your knowledge by signing this form. Keep in mind that you are signing this declaration under penalty of perjury. If you lie on your bankruptcy papers, the court might dismiss your case without a discharge, and you could face criminal charges for bankruptcy fraud.

Your Statement of Financial Affairs for Individuals Filing for Bankruptcy

The Your Statement of Financial Affairs for Individuals Filing for Bankruptcy is a lengthy and complicated form that provides information to the court about your financial dealings. On the form, you disclose your gross income from all sources for the last two years, recent payments to creditors, lawsuits, prior foreclosures and repossessions, property transfers, closed bank accounts, and information about your business.

Statement of Intention for Individuals Filing Under Chapter 7

If you have secured debts, executory contracts, or unexpired leases, the Statement of Intention form tells the court and the creditor what you intend to do with the property and the debt. You must indicate whether you plan to keep or surrender the property connected to secured debts. If you want to keep the property, you'll state whether you wish to redeem it or reaffirm the debt.

Surrendering property. If you don't want to keep a particular property, such as a car or house, you can walk away by surrendering or giving it back to the creditor. The bankruptcy discharge eliminates your liability for the loan.

Reaffirming debt. If you want to retain the property, a secured lender might require you to reaffirm your debt. Your bankruptcy discharge eliminates your liability for all discharged debts. By reaffirming, you essentially sign a new contract with the lender and agree to make yourself responsible for the debt again despite your discharge. Car loans are the most common reaffirmed debts.

Redeeming property. When you redeem an asset in bankruptcy, you pay the lender the replacement value of the property in one lump sum. After you redeem the property, the creditor's lien is removed and you own it free and clear. Your discharge wipes out the remaining balance of the loan. However, in most cases, this is not possible for many debtors because they don't have enough money to make a lump sum payment.

Chapter 7 Statement of Your Current Monthly Income and Means Test Calculation

These forms make up the Chapter 7 means test. The calculations determine whether you qualify to receive a Chapter 7 discharge.

Notice Required by 11 U.S.C. § 342(b) for Individuals Filing for Bankruptcy

This form provides information about credit counseling agency services, the types of bankruptcy available to individuals, and what can happen if you commit a bankruptcy crime.

Your Statement About Your Social Security Numbers

This statement is where you disclose your social security number. Due to privacy concerns, the Your Statement About Your Social Security Numbers form won't appear on the court's public docket.

Creditor Mailing List

In addition to completing the forms listed above, you must prepare a "creditor mailing list" or "creditor matrix" for the court before filing your case. The court uses the creditor matrix to send all your creditors notice of bankruptcy. Each court has formatting guidelines for creditor mailing lists. Check with your local bankruptcy court to learn the requirements in your area for preparing your creditor mailing list.

Find out more about the forms you'll need to file for bankruptcy.

Filing Your Bankruptcy Petition

When you have filled out all required bankruptcy forms and schedules, you'll want to review them carefully to ensure they are complete and accurate. You'll also attach a certificate of completion showing that you took credit counseling from an approved agency within the previous six months. Usually, the course takes a few hours online or by phone.

Once complete, you can file the petition with the court by paying the appropriate filing fee. The required court filing fee for a Chapter 7 bankruptcy is $338 (as of October 17, 2024), but court filing fees are updated periodically and can change.

If you can't afford the filing fee, you might be eligible for a waiver if your combined household income is less than 150% of the applicable poverty guideline in your area. Those with higher incomes can ask to pay the fee in four installments. To apply for a waiver, complete the Application to Have the Chapter 7 Filing Fee Waived.

What to Expect During the Chapter 7 Process

After completing the bankruptcy petition, schedules, and forms (called the "petition"), you'll be ready to file your case with the court. The Federal Court Finder can help you find the proper location. Check the court's website to ensure you're choosing the correct court.

Here's what will happen after you file.

Notices From the Bankruptcy Court

The court will send you and your creditors a Notice of bankruptcy with dates and deadlines, such as the date and location of your meeting of creditors (also called the 341 hearing). The meeting of creditors is a mandatory hearing where the trustee and your creditors can ask you questions under oath about your financial affairs and the information disclosed in your bankruptcy petition.

You'll also receive notices regarding the trustee appointed to your case and the requirement to complete a second class—a debtor's education course—before receiving a discharge order canceling qualified debts.

The Automatic Stay

After filing your bankruptcy petition, the bankruptcy court puts an order called the "automatic stay" in place. The automatic stay prohibits almost all creditors from continuing collection actions. Creditors can't contact you, collect money from you, foreclose your home, repossess your car, or place a lien on your property.

Exceptions to the automatic stay exist—for instance, it won't stop criminal actions or child support litigation—and creditors ask the court to "lift" or remove the automatic stay. Also, if you filed once before during the prior year, the stay will last 30 days. It won't be put in place if you've filed two or more times.

However, you can file a motion asking the court to extend the stay. The court will grant it if you show your filings were in good faith and not an attempt to manipulate the bankruptcy system or avoid paying creditors.

Verifying Documents

At least seven days before the first date set for the meeting of creditors, you'll send documentation to the trustee (or the court in some jurisdictions) proving financial statements made in your bankruptcy paperwork. You can expect to forward your most recent tax return, along with bank statements, paycheck stubs, and more, depending on the requirements of the trustee assigned to your case.

341 Meeting of Creditors

Every filer must attend one meeting of creditors (341 hearing) conducted by the bankruptcy trustee. The court will typically schedule the meeting for 20 to 40 days after your filing date. If you don't attend, the court will dismiss your case without a debt discharge, so it's essential to notify the trustee immediately if you can't make it to your 341 hearing.

At the meeting, the trustee will verify your identity and ask questions about your petition and finances. Creditors can also appear and ask questions but usually don't.

Bankruptcy Discharge and Case Closure

After completing the requirements above, the court will grant a bankruptcy discharge, and the automatic stay will end. However, the discharge won't state the particular debts erased. Instead, the discharge lists the types of debt that survive bankruptcy, such as domestic support obligations, recently acquired tax obligations, and student loan debt.

Shortly after issuing the discharge order, the court will close your case unless the trustee hasn't distributed all nonexempt assets or if you're involved in bankruptcy litigation. In those situations, the case might remain open for six months or more, but usually not more than a year.