by: Kathleen Michon, J.D.
Most Chapter 7 bankruptcy cases are not complicated. From start to finish the whole process takes about four to six months. Chapter 7 filers rarely go to court, although the process does require one mandatory non-court appearance before the trustee. The case ends with a discharge of most or all of the filer’s debt.
1. Pre-bankruptcy credit counseling. Chapter 7 bankruptcy filers must get credit counseling from an approved agency within the six months prior to the bankruptcy filing. (To learn more, see the Credit Counseling Requirement in Bankruptcy.)
2. Bankruptcy petition. You must file a packet of forms consisting of the bankruptcy petition, schedules (which contain detailed information about your finances), other forms (which calculate your income and expenses, let the court know which property you claim as exempt, and inform the court of various other information). See How to File for Chapter 7 Bankruptcy for detail on this step.
3. Automatic stay. Once you file your bankruptcy petition, the automatic stay goes into effect. The automatic stay prohibits almost all of your creditors from continuing collection actions against you. (To learn more, see Bankruptcy’s Automatic Stay.)
4. The bankruptcy trustee. The court assigns a bankruptcy trustee to administer your case. The trustee will try to maximize assets in the bankruptcy estate to distribute to your unsecured creditors, look for inaccuracies in your paperwork, and check for any possible fraud. (To learn more about the bankruptcy trustee, see The Bankruptcy Trustee.)
5. The meeting of creditors. You must attend the meeting of creditors (341 hearing). This is not a court hearing, but a meeting run by your bankruptcy trustee. The trustee will ask you questions about your petition and finances. Creditors may, but often don’t, appear and ask questions.
6. Eligibility for Chapter 7. The court decides if you are eligible for Chapter 7. One reason that the court might deny eligibility is that you didn’t pass the means test. To learn more about the Chapter 7 eligibility, see the articles in The Means Test in Chapter 7 Bankruptcy.
7. Your property. If your property is exempt, you keep it. If you have some nonexempt property, the trustee must decide what to do: seize and sell it to repay your creditors or abandon it. Even if your property is not exempt, all is not lost. Learn about your options in Your Property in Chapter 7 Bankruptcy.
8. Secured debts. You must decide what to do about your secured debts – those debts for which you pledged property as collateral, like a mortgage or car loan. Typically you can surrender (give back) the property, redeem (pay for) the property, reaffirm the loan, or do nothing and keep paying the debt.
9. Financial management course. Before you get your discharge, you must take a debtor's education course. This is in addition to credit counseling you received before you filed for bankruptcy (see Step 1).
10. Your discharge. Somewhere between three and six months after you file for bankruptcy, the court will grant your bankruptcy discharge. When this happens, the automatic stay ends.
11. Case closed. After the court grants your discharged, it will close your case – usually a few days or weeks later.