Chapter 7 Bankuptcy: Vital Steps Before You File

People in serious financial difficulties have various options for relief, one of which is declaring bankruptcy. For most individuals, this involves filing for Chapter 7 bankruptcy, the type of bankruptcy that deals mainly with consumer debt. Filing for Chapter 7 is not something to be taken lightly, however. Here are some key steps to carry out before you file.

Do You Need To File?

The first step in determining whether filing is actually necessary. Bankruptcy has a negative effect on such things as whether you can obtain credit or bank loans. That's why many people will avoid it if there's a better alternative. One option is to talk to your creditors and see if they will make payment arrangements that you can afford. This is a better way to discharge of your debt than bankruptcy in some instances.


After you have determined that filing for Chapter 7 is the right choice, you still need to make sure that you are eligible. One key factor is whether you make less than the median income in your state. If so, then most likely you're eligible. If not, then you must pass a rather complex means test to determine if you can pay off a portion of your debt with your disposable monthly income.

If you have enough money left over each each month to make a significant payment to your creditors, then you will not be able to file for chapter 7. In this case, you will probably need to file for chapter 13 bankruptcy, which requires you to satisfy your creditors under the terms of a repayment plan approved by the bankruptcy court.

Property Exemptions

Creditors have the right to take certain property that you own to satisfy your debt. This typically includes things such as stocks, bonds, and any cash you have in a bank account. Other property, however, will be exempt under the laws of your state. Examples of property that is often exempt from debt collectors in many states include a single automobile, pensions, and a portion of the equity in your home.

Make certain that you understand exactly what types of property are exempt under your state laws so that you can save as much of your assets possible.

Filing for Chapter 7 bankruptcy without expert legal help is allowed under the law, but it is definitely a bad decision. Bankruptcy law is extremely complicated, and you will need the help of an experienced bankruptcy attorney to navigate the process successfully. Contact your local bankruptcy attorney services for more information.