The basics of Chapter 7 bankruptcy: Starting from scratch

Chapter 7 bankruptcy can enable people to discharge their debt and start again with a clean financial slate.

Of the 844,495 people who filed for bankruptcy in 2015, approximately 535,047 cases were for Chapter 7 bankruptcy. Also referred to as liquidation bankruptcy, Chapter 7 allows people to wipe away much of their outstanding debt and essentially start over when it comes to their finances. Not everyone, however, can qualify to file for Chapter 7 bankruptcy. While this type of financial absolvement may have definite benefits to some, it can make a big impact on people's credit score and ability to qualify for certain types of loans in the future. Before people file for bankruptcy in Illinois, they should make sure they understand everything that it entails.

Qualifying for Chapter 7

In order to qualify for Chapter 7 bankruptcy, a debtor must pass the state means test, according to the U.S. Courts. Essentially, the debtor's income cannot be over a set amount that is determined by the state. If the income is above this set amount, the debtor may be better suited for a debt reorganization bankruptcy. Debtors must also take a credit counseling course prior to filing for bankruptcy, as well as a financial course after filing. These courses are designed to help people set up a budget and inform them of the consequences they may be exposed to with a bankruptcy on their record.

Filing the paperwork

Along with the general bankruptcy application, debtors must submit a current list of all of their creditors and financial obligations. In addition, they must provide a complete listing of their property, including all assets. People must be sure to provide all of the proper documentation in order to avoid having their bankruptcy application rejected.

Meeting of creditors

Once the paperwork has been given to the court, a meeting of creditors will be scheduled with a court-appointed trustee. The trustee will determine if any property should be repossessed and sold. Any funds that are obtained from the sale of property will then be redistributed to the creditors involved in the case. Creditors who have questions regarding the case are also invited to attend the meeting.

It is important to realize that not all debts are eligible for discharge. Any fines imposed by the state or federal criminal court, outstanding student loans or child support expenses cannot not be written off in a bankruptcy.

Simplifying the bankruptcy process

Having a knowledgeable attorney to help you through the bankruptcy process can be extremely helpful. Having a lawyer on your side may even help to expedite the bankruptcy and debt discharge.