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What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is a bankruptcy option for individuals who qualify. You may have heard of Chapter 7 bankruptcy but wondered who qualifies and how you file for Chapter 7 bankruptcy. To file for Chapter 7 bankruptcy, the filing party must file a bankruptcy petition and also provide a schedule of assets and liabilities, a schedule of income and expenditures, a statement of their financial affairs and a schedule of executory contract and leases that have not expired. A copy of the filing party's most recent tax return must also be provided.

Additional documentation is required from filing parties with primarily consumer debts. The court uses the means test to determine if the filing party qualifies for Chapter 7 bankruptcy which provides that their income is equal to, or less than, the median income in their state. Once the filing party has filed for bankruptcy, an automatic stay goes into effect that prevents creditors from pursuing any collection actions during the bankruptcy process.

In addition, after the filing party files for Chapter 7 bankruptcy, the filing party's creditors will meet. As part of the process of filing for Chapter 7 bankruptcy, the filing party is required to provide a list of all creditors and amounts owed. Chapter 7 bankruptcy is considered a liquidation bankruptcy which allows for non-exempt assets to be liquidated to repay debts. The conclusion of the Chapter 7 bankruptcy process is a debt discharge which can provide struggling consumers with much-needed debt relief.

The bankruptcy process can be complex so it is important to be knowledgeable concerning the details of each step of the process to ensure the goals of the process are met. There are additional bankruptcy options that may be available to others in different circumstances so it is important to be familiar with all of the available options and which is best for you.

Source: Bankruptcy.findlaw.com, "Chapter 7: How it Works," Accessed July 11, 2016

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