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J.K. Lasser's The New Bankruptcy Law and You

Bankruptcy: An Action Plan for Renewal

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Mandatory Credit Counseling

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How to File for Chapter 13 Bankruptcy

How to File for Chapter 7 Bankruptcy

The entire process of filing for Chapter 7 bankruptcy usually takes about 3–6 months and involves eight steps:

Obtain bankruptcy forms.
Attend mandatory credit counseling.
Prepare your bankruptcy petition.
File your bankruptcy petition.
File a statement of intention.
Attend the 341 meeting.
Attend mandatory credit counseling (again).
Receive a discharge of your unsecured debts.

1. Obtain Bankruptcy Forms

The Chapter 7 bankruptcy petition you file with the bankruptcy court must include the 17 forms listed below. Names included in parentheses are the alternate names used to refer to some of the forms.

Form 1 (Voluntary Petition): A request that the court discharge the debts listed in your petition.
Form 3: A form filed only if you want to pay your filing fee (court costs) in installments or if you’re seeking a fee waiver.
Form 6 (Schedules): A collection of forms, called schedules, that inventory your debts, assets, income, expenses, creditors and so on.
- Schedule A: An itemized list of your real property, such as homes and land.
- Schedule B: An itemized list and estimated current market value of your personal property, such as bank accounts, cars, and household goods.
- Schedule C: Any real and personal property that you would like to claim as exempt.
- Schedule D: A list of your secured debts, such as mortgages, and the creditors for each.
- Schedule E: A list of your unsecured priority claims, which are unsecured debts that take priority over unsecured nonpriority claims. Priority claims are usually the same as debts that cannot be discharged under Chapter 7. For instance, overdue income tax bills are unsecured priority claims that take precedence over unsecured nonpriority claims, such as credit card bills.
- Schedule F: A list of your unsecured nonpriority debts, such as credit card bills and personal loans, including contact information and account numbers for all unsecured-debt creditors. The address for creditors is the address where the creditor receives correspondence, not the address where you send your monthly bill payments. Schedule F does not include unsecured priority claims.
- Schedule G: A list of all contracts or property leases to which you are currently bound.
- Schedule H: A list of co-debtors, or third parties with whom you share a debt, and the contact information of any creditors owed these debts.
- Schedule I: A list of your income sources, including employer contact information.
- Schedule J: A list of your monthly expenses, including all bills, loan payments, and so on.
- Summary of Schedules: A list of totals for all schedules that include monetary amounts. For instance, your total monthly expenses (from Schedule J) and total current secured debts (from Schedule D) appear in the Summary of Schedules.
Declaration Concerning Debtor’s Schedules: A declaration, under penalty of perjury, that the information in the schedules is true and accurate.
Form 7 (Statement of Financial Affairs): A detailed breakdown of your financial history during the few years prior to filing. Form 7 requires you to supply information on everything from assets to gifts to bank account numbers and balances. You must complete the form truthfully, under penalty of perjury.
Mailing Matrix (also known as Creditor’s Matrix): An alphabetical list of names and mailing addresses for all creditors included in your petition.

Where to Get the Chapter 7 Bankruptcy Forms

You can get the forms you need to file Chapter 7 bankruptcy in a variety of ways:

Online: Download and print the forms for free online at www.uscourts.gov/bkforms/index.html.
Bookstores and office supply stores: Buy a printed set of the required forms for $20–30.
Lawyer or BPP: If you’re working with a lawyer or a BPP, he or she will provide the required forms.

2. Attend Mandatory Credit Counseling

You must attend your first session of credit counseling no more than 180 days before you file for bankruptcy. For more on what to expect, see Mandatory Credit Counseling.

3. Prepare Your Bankruptcy Petition

Your bankruptcy petition includes the required Chapter 7 bankruptcy forms, a certificate that proves that you attended the first session of mandatory credit counseling, and copies of a few financial documents, such as tax returns and paychecks. If you’re working with a bankruptcy lawyer or BPP, the he or she will direct you in gathering your financial and personal information and will complete the forms for you. If you’re completing them on your own, fill out the bankruptcy forms carefully, truthfully, and in full.

4. File Your Bankruptcy Petition

After assembling the necessary documentation and completing the required forms, your next step is to file, or submit, your bankruptcy petition.

If you’re working with a lawyer: Your lawyer will file your petition and related documents electronically with the bankruptcy court that has jurisdiction over your federal bankruptcy district.
If you’re filing without a lawyer: You must file your petition, either in person at the bankruptcy court in your federal bankruptcy district or by mail.

When Should You File Your Petition?

Before filing, it’s crucial to consider the debts, income, expenses, and assets that you’ll have on your filing date. For example, if your income level during the six months prior to filing would likely prevent you from qualifying for Chapter 7, but you just lost your job and can’t pay your bills, your best move would probably be not to file for bankruptcy right away. Instead, if you wait a few months, you’ll bring down your average income level and increase your chances of qualifying for Chapter 7. Regardless of your specific situation, you should consult a bankruptcy lawyer to help you determine the best day on which to file.

What Happens After You File?

Though filing for Chapter 7 bankruptcy doesn’t immediately erase your debts, it does trigger an automatic stay, an injunction that prohibits your creditors from taking any further collection actions against you or your property. Creditors can no longer make harassing phone calls, pursue repossessions or foreclosures, or file lawsuits against you. The stay remains in effect from the moment of filing through the date of discharge, assuming the court issues you a discharge. Within a week of your filing date, the court mails out a notice of filing to alert creditors that you have filed bankruptcy and to initiate the automatic stay.

5. File a Statement of Intention

The main goal that most debtors have in filing for Chapter 7 bankruptcy is to have their unsecured debts eliminated. Most Chapter 7 filers also have some amount of secured debt as well, such as an auto loan or the mortgage on a home. The U.S. Bankruptcy Code requires a Chapter 7 debtor to make one of three choices regarding property owned through secured debt: reaffirmation, redemption, or surrender.

Reaffirmation: Reaffirmation allows you to retain the property by signing a new loan agreement with the original creditor. The revised agreement usually has the same terms as the original agreement, but the agreement’s enforcement is now under the jurisdiction of the bankruptcy court. For instance, if you reaffirm a mortgage but fail to pay it, the creditor can foreclose on the house and sue you for any money you still owe. The reaffirmation must be signed by you, your lawyer (if any), and the creditor, and is then filed with the bankruptcy court. If you fail to honor the reaffirmed agreement, the creditor can file a relief of automatic stay, which removes your bankruptcy protection for the specific debt in question and allows the creditor to sue you.
Redemption: Redemption occurs when you pay the creditor the current replacement value of the property in one lump sum. Redemption is a great option if you own property that’s worth less than the debt you owe on the property. For example, if you owe $3,000 on a car loan for a car that’s now worth only $1,000, you can use redemption to pay off the creditor by paying just $1,000. Though the creditor won’t recoup the full value of the loan, the creditor will typically be happy to get any payment at all, especially a lump sum. Redemption won’t work if the property is worth more than the outstanding debt or is too costly for you to pay off at its current value.
Surrender: If you’re a Chapter 7 debtor who can’t afford to continue to make payments on a secured loan (via reaffirmation) or make a lump-sum payment equal to the current value of the property (via redemption), you usually have no other choice but to surrender, or give back, the property to the creditor. If you surrender the property to the creditor, the loan on the property is considered paid in full.

Statement of Intention

Once you’ve decided how to handle your secured debts, you file a statement of intention with the court to inform secured-debt creditors whether you intend to reaffirm, redeem, or surrender. The statement of intention must be:

Filed within 30 days of the bankruptcy’s filing date
Mailed to each secured-debt creditor listed in the bankruptcy petition in order to give creditors notice of your intentions

If you choose redemption or surrender, you must pay the creditor in full or surrender the property within 30 days after the 341 meeting (see below). If you choose reaffirmation, you must make the first payment on the revised loan agreement within 30 days after the 341 meeting. If you fail to comply with the terms of the statement of intention within 45 days of filing the statement, the creditor can ask the court to force you to surrender the property, even if your bankruptcy is in process.

6. Attend the 341 Meeting

The 341 meeting—named after the section of the bankruptcy code in which it’s covered—is typically the only time that you must appear in person in court during a Chapter 7 bankruptcy. The meeting usually occurs 4–6 weeks after the filing date, lasts about 10 minutes, and takes place in a hearing room at the U.S. bankruptcy court where you filed your petition. A U.S. bankruptcy trustee, not a judge, presides over the 341 meeting.

The Purpose of the 341 Meeting

The main purpose of the 341 meeting is to provide a forum in which a bankruptcy court official (the trustee) and the creditors involved in the case can question you, the debtor, under oath about your specific debts and financial situation. Creditors rarely attend these meetings, so usually the trustee asks all the questions. The purpose of the questioning is to confirm in person that you:

Have not misrepresented your financial situation in the bankruptcy petition
Are not concealing assets or income not declared in the petition

To verify your claims in the petition, the trustee will usually ask to see copies of documents in the petition and then pose questions to you about their contents. After the questioning, creditors can raise formal objections to allowing the bankruptcy to proceed based on information revealed during the meeting.

The Possible Outcomes of the 341 Meeting

There are two possible outcomes of the 341 meeting:

Trustee approves the petition: If the trustee is satisfied with the petition’s contents and your testimony, the case proceeds to discharge (usually within 2–3 months), assuming all the conditions for discharge have been met.
The trustee does not approve the petition: If the trustee finds anything questionable or lacking in the your petition or testimony, he or she will request that you provide additional documentation before the case can move along to discharge.

7. Attend Credit Counseling (Again)

You must take a second mandatory credit counseling course before the court will agree to discharge your debts and close, or finalize, your case. The second session lasts two hours and costs roughly $50–100. You can usually take the second session from the same counseling center where you took the first session.

The second session is a personal financial management course and focuses on managing finances responsibly after bankruptcy. If you’re filing Chapter 7 bankruptcy, you must attend this course within 45 days after the 341 meeting. After the course, the counseling service will issue you a certificate that proves that you’ve attended the second mandatory session. The court will require you to present this document in order to discharge your debts.

8. Receive a Discharge of Unsecured Debts

In a discharge, which is usually the last action that the court takes before closing a bankruptcy case, the bankruptcy court erases your liability for unpaid balances on certain unsecured debts—the debts essentially vanish. Creditors can no longer collect on the debts, but they can take a tax deduction equal to the amount of money they lent you but never received back.

Discharge typically occurs 2–3 months after the 341, as long as you’ve attended the second session of credit counseling within that time. To qualify for discharge of any of your debts, three conditions must be met:

All of your required documents and forms were completed correctly and filed on time.
Neither the court nor any creditors have any remaining objections to the discharge.
You have presented proof of attending both sessions of mandatory credit counseling.

Even if these three conditions are met, not all your debts will necessarily be discharged as a result of a Chapter 7 bankruptcy, as explained below.

Debts Dischargeable by a Chapter 7 Filing

As long as they were incurred before you filed for bankruptcy, the following types of unsecured debt can typically be discharged under a Chapter 7 bankruptcy:

Credit card bills
Medical bills
Overdue rent bills
Monetary damages that you were forced to pay as a result of civil lawsuits
Financial obligations that you had agreed to in a contractual agreement
Various types of unsecured loans, such as personal loans from friends or relatives

Debts Not Dischargeable by a Chapter 7 Filing

The following types of unsecured debt can’t be discharged by a Chapter 7 bankruptcy and must be paid according to their original terms:

Child and/or spousal support payments
Fines, penalties, or restitution levied against you by a federal, state, or local government for violating a law
Court costs or filing fees
Debts for loans taken out against retirement accounts
Debts incurred due to fraud, namely credit card charges exceeding $500 that were incurred for luxury purchases within 90 days of the filing date
Debts resulting from driving while intoxicated
Condo, co-op, or homeowners’ association fees assessed at any point after your filing date
Debts deemed ineligible for discharge in a previous bankruptcy case in which you were the debtor

Debts Usually Not Dischargeable by Chapter 7

Most bankruptcy courts consider student loans, as well as regular federal, state, and local income tax bills, ineligible for discharge under a Chapter 7 bankruptcy. Some courts, however, make exceptions for these two types of debt if paying them off would create an undue hardship for you, meaning that it would be impossible for you to maintain an adequate standard of living and pay off the debt.

Do All Chapter 7 Bankruptcies Result in Discharge?

In short, no. For instance, bankruptcy courts can refuse to grant a discharge if you:

Received a Chapter 7 discharge for a case filed within eight years of the current filing
Received a discharge in a Chapter 13 case filed within six years of the current filing, unless creditors in that case received 70% of their claims
Purposely failed to list an asset or provided false information in the bankruptcy forms and schedules
Lied to or failed to cooperate in any way with the trustee at the 341 meeting
Disobeyed a court order, such as by failing to provide additional documentation that the court requested
Failed to complete and provide proof of attending both mandatory credit counseling courses

Acknowledgments & Disclaimer

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Mandatory Credit Counseling

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How to File for Chapter 13 Bankruptcy

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