How to File Bankruptcy Chapter 7 for Free

Chapter 7 bankruptcy offers individuals a means to address overwhelming debt and pursue a fresh financial beginning. This process, often called liquidation bankruptcy, allows for the discharge of many unsecured debts, such as credit card balances and medical bills. This guide aims to demystify the Chapter 7 process, focusing on requirements, minimizing expenses, qualification criteria, necessary documentation, fee management strategies, and procedural aspects of filing.

Determining Your Chapter 7 Eligibility

Qualifying for Chapter 7 bankruptcy involves meeting specific criteria. A primary component is the “means test,” which evaluates an individual’s income and expenses. This test compares an applicant’s average current monthly income over the six months prior to filing against the median income for a household of similar size in their state. If an individual’s income is below this state median, they pass the means test and are presumed eligible for Chapter 7.

If the income exceeds the state’s median, a second step of the means test is required. This involves calculating disposable income by subtracting certain allowable expenses, based on Internal Revenue Service (IRS) guidelines, from the higher income. Should the remaining disposable income indicate an ability to repay a significant portion of unsecured debts over a five-year period, the individual may not qualify for Chapter 7. In such cases, Chapter 13 bankruptcy, which involves a repayment plan, might be the appropriate option.

Before filing, individuals must complete a mandatory credit counseling course from an agency approved by the U.S. Trustee Program. This course, 60 to 90 minutes, must be completed within 180 days before the bankruptcy petition is filed. It is designed to assess the filer’s financial situation and explore alternatives to bankruptcy, though agreeing to a repayment plan is not required.

Eligibility also considers any prior bankruptcy filings. An individual cannot receive a Chapter 7 discharge if they obtained a Chapter 7 discharge within the preceding eight years. If the previous discharge was under Chapter 13, a six-year waiting period applies before another Chapter 7 discharge can be obtained, unless certain conditions regarding debt repayment were met. Furthermore, if a previous bankruptcy petition was dismissed within the last 180 days due to the filer’s willful failure to appear or comply with court orders, or if the case was voluntarily dismissed after creditors sought relief, the individual might be ineligible to file again.

Preparing Your Bankruptcy Documents

The preparation of bankruptcy documents is a detailed process requiring accurately presenting financial information. Filers must compile a comprehensive overview of their financial life, including personal details, income, assets, and debts. This involves collecting pay stubs, tax returns, bank statements, deeds, car titles, loan agreements, and collection notices.

The core of the filing consists of the Voluntary Petition and various schedules that categorize financial information. Schedule A/B details all assets, encompassing real estate, vehicles, bank accounts, personal property, and investments. Schedule D lists secured debts, such as mortgages and car loans, while Schedules E/F cover unsecured debts like credit card balances and medical bills, providing creditor names and amounts owed.

Income and expenses are reported on Schedule I and Schedule J, respectively. These forms require a thorough accounting of all income sources and monthly living expenses. Additionally, the Statement of Financial Affairs provides a historical look at the filer’s financial activities, including recent payments to creditors and transfers of property, ensuring transparency.

The completed Means Test form and the Certificate of Credit Counseling, received after completing the mandatory pre-filing course, must be included. All these forms are official court documents. Obtain the most current versions from the U.S. Courts website to ensure compliance with federal requirements.

Managing Your Filing Fees

Filing for Chapter 7 bankruptcy involves a federal court filing fee, which is currently $338. While this fee is generally required at the time of filing, options exist for individuals who cannot afford to pay it immediately. One such option is to apply for a fee waiver.

A fee waiver is available to individuals whose household income falls below 150% of the federal poverty line for their family size. To request this, filers must complete a specific application form, providing detailed information about their income and expenses. The court assesses this application to determine if the individual cannot pay the fee, either in full or in installments.

If a fee waiver is not granted or applied for, individuals may request to pay the filing fee in installments. This involves making three to four payments over a period of up to 120 days. The first installment may not be required at filing, offering some immediate financial relief.

Beyond the court filing fee, there are other potential costs to consider. The mandatory pre-filing credit counseling course costs between $10 and $50, with post-filing debtor education courses ranging from $8 to $50. Many approved agencies offer fee waivers or reduced rates for these courses based on the individual’s income, often using the same 150% of the poverty line criterion. Minor expenses might include obtaining copies of credit reports or necessary financial documents.

Completing the Filing Process

After preparing all the required documents and addressing the filing fees, submit the complete bankruptcy petition to the bankruptcy court. This can be done in person, by mail, or electronically, depending on the court’s specific procedures. Upon successful submission, the court will assign a case number, officially initiating the bankruptcy proceedings.

Once the petition is filed, an immediate legal protection known as the automatic stay goes into effect. This stay temporarily prohibits most creditors from continuing collection activities, including lawsuits, wage garnishments, and repossessions.

A mandatory Meeting of Creditors, also known as the 341 meeting, is scheduled 20 to 40 days after the filing date. This meeting is attended by the filer, the bankruptcy trustee assigned to the case, and any creditors. The trustee’s role is to verify the information in the bankruptcy petition and schedules, asking questions under oath about the filer’s assets, debts, income, and expenses.

Following the 341 meeting, the filer must complete the second mandatory course, known as the debtor education or personal financial management course. This course must be finished after the bankruptcy case is filed but before a discharge can be granted. It focuses on developing budgeting and financial management skills.

After the 341 meeting and the completion of the debtor education course, there is a waiting period, 60 days, during which creditors can object to the discharge of certain debts or to the bankruptcy itself. If no valid objections are raised, or if they are resolved, the court will issue an order of discharge. This order legally releases the individual from personal liability for most of their eligible debts.