Filing for Chapter 7 bankruptcy can feel overwhelming, especially if you're already struggling with financial stress. But understanding the process can help ease anxiety and give you a clear path forward. In this guide, we’ll walk you through the general Chapter 7 bankruptcy process step-by-step so you can make informed decisions about your financial future. Of course, our attorney’s are available to answer
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” is a legal process that allows individuals or businesses to eliminate most unsecured debts, such as credit card bills, medical expenses, and personal loans. In exchange, certain non-exempt assets may be sold (or “liquidated”) by a bankruptcy trustee to repay creditors.
Step 1: Evaluate Your Eligibility
Before filing, you must determine if you qualify for Chapter 7. This involves passing the Means Test, which compares your income to the median income for a household of your size in your state. If your income is below the median or you don’t have significant disposable income, you likely qualify.
Tip: Even if you don't pass the Means Test, you may still be eligible for Chapter 13 bankruptcy.
Step 2: Credit Counseling
Federal law requires that you complete a credit counseling course from an approved provider within 180 days before filing your bankruptcy petition. This course helps you explore alternatives to bankruptcy and is a required step in the process.
Step 3: File Your Bankruptcy Petition
Filing for Chapter 7 officially begins when you submit your bankruptcy petition to the court. This includes:
- A list of all debts
- A list of assets and property
- Income and expenses
- Recent financial transactions
- A statement of financial affairs
Once filed, an automatic stay goes into effect. This means creditors must stop collection efforts, lawsuits, and wage garnishments immediately.
Step 4: Appointing a Bankruptcy Trustee
After filing, a court-appointed bankruptcy trustee will take over your case. The trustee's job is to:
- Review your paperwork
- Identify non-exempt assets that can be sold
- Distribute proceeds to creditors (if any)
- Conduct the 341 Meeting (also called the “meeting of creditors”)
Step 5: The 341 Meeting of Creditors
About 3–6 weeks after filing, you'll attend the 341 meeting. This is a brief and straightforward meeting where the trustee (and sometimes creditors) asks questions about your finances and bankruptcy documents. You must answer truthfully under oath, but most meetings last less than 15 minutes.
Tip: Your attorney will attend this meeting with you.
Step 6: Non-Exempt vs. Exempt Property
Most Chapter 7 filers keep all or most of their property thanks to state and federal exemptions, which protect things like:
- Your home (up to a certain equity amount)
- Vehicles
- Retirement accounts
- Basic household goods
If the trustee identifies non-exempt property, they may sell it and distribute the proceeds to creditors.
Step 7: Financial Management Course
After filing, you must complete a debtor education course (also called a financial management course) before you can receive your discharge. This course is separate from the initial credit counseling and is also required by law.
Step 8: Discharge of Debts
Typically, about 60–90 days after your 341 meeting, the court will issue a discharge order. This means you are no longer legally required to repay the debts included in your bankruptcy.
Common discharged debts include:
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
Note: Some debts, like student loans, child support, and certain tax debts, are generally not dischargeable under Chapter 7.
Step 9: Case Closed
After the discharge is granted, the court will formally close your case. You now have a fresh financial start. Although your credit will be impacted, many filers are able to start rebuilding their credit within a year of filing.
Chapter 7 bankruptcy can provide much-needed relief and a chance to rebuild your financial life. While the process may seem complicated, working with an experienced bankruptcy attorney can make all the difference. At Castle Law Office, we’re here to guide you through each step with clarity, compassion, and professionalism.
Ready to take control of your financial future? Contact us today for a free consultation.
