Chapter 7 Bankruptcy Guidelines
If you have debts well in excess of your ability to pay them off, you may consider filing for bankruptcy protection from your creditors. Chapter 7 bankruptcy, also known as a liquidation bankruptcy, can get most or all of your debts discharged in return for the forfeiture of any valuable assets you may own. In order to earn a discharge, you must follow federal, state and local bankruptcy rules.
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Means Test
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Before 2005, all debtors were eligible to file a Chapter 7 bankruptcy. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 now allows only those who qualify to file for Chapter 7, with the main determinant being a means test. First you must show an annual income below the median income for a family of your size in your state. If your income exceeds the median, you must show that you have enough expenses to lower your disposable income to qualifying levels.
Exemptions
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Under Chapter 7, If you have high-value assets, you must turn them over the court for liquidation. However, certain assets are exempt. While bankruptcy is a federal procedure, each state determines its own asset exemption levels for bankruptcy purposes, and some are more generous than others. If you wish to protect any of your assets, you must look up the asset exemption levels in your state and claim your eligible assets as exempt on your bankruptcy petition. If you fail to exempt assets correctly, you may have to forfeit them to your creditors.
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Local Rules
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Each local court district has specific rules that you must follow in addition to federal rules when filing Chapter 7 bankruptcy. Your local bankruptcy clerk can provide you with a list of local rules to follow. Typically, local rules include certain required extra forms and a requested order of petition documents.
Meeting of Creditors
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In a Chapter 7 bankruptcy, you must appear before the bankruptcy trustee at a Section 341 Meeting of Creditors. This is usually a short meeting in which the trustee reviews your bankruptcy petition and asks you questions about the information you have provided. Any of your creditors are also welcome to attend the meeting and ask you questions about your petition.
Time Frame
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According to federal bankruptcy procedure, you may submit a partial or "emergency" petition to your local bankruptcy clerk at any time, but you must submit the remainder of the petition within 15 days, or your petition is subject to dismissal. The 2005 bankruptcy legislation also requires both a pre-filing counseling class that you must complete within six months before you file bankruptcy and a post-filing financial management class that you must complete within 45 days of your Section 341 meeting of creditors.
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