Alternatives to Chapter 13 Bankruptcy

If you’re seriously considering bankruptcy, you’re probably in a situation where it may be your best option. However, in some cases it may not be the best option at all. So what are some alternative options that people use to avoid bankruptcy.

Do nothing

Surprisingly, some people may find that the best approach is to simply do nothing and wait for the debts to go way. If you have little income and few assets you may be judgment proof, and if you cannot foresee this situation changing, you could just wait until the statute of limitations expires and the debts are simply wiped off your record completely. This really only makes sense if you don’t have any plans or possibility of increasing your income or getting more assets.

In most cases, creditors cannot simply take your property without first doing you in obtaining a court judgment. There are exceptions to this rule, some of which include the IRS and student loan collectors. However, even if a creditor obtains a judgment against you they can’t take everything you own. That would go against the whole point of bankruptcy, which is to allow you the possibility of financial recovery.

If a creditor does obtain a judgment against you they aren’t going to go after your property if it’s not worth enough to make it worth their time. Keep in mind that costs a creditor a lot of money in attorney’s fees and court costs just to take you to court and obtain a judgment, not to mention collecting on that judgment. So if you don’t have sufficient assets to offset those costs, they probably aren’t going to do anything.

Even if you have no assets, you may have income and the creditor may be able to obtain a judgment to garnish your wages. However, a creditor can only take 25% of your net wages in order to satisfy the court judgment. Like everything else of course, there are exceptions to this, such as child support and alimony, but for most people you can keep 75% of your wages even after a creditor has obtained a judgment to garnish those wages. Additionally, you may be able to keep more than 75% of your wages if you can demonstrate that you need it to support yourself and your family. It’s my understanding as well that creditors cannot go after her welfare, unemployment insurance, disability, social security, or other public benefits.

That said, I’ve read that a judgment can last up to 10 years or more, so if your situation may change in the future, in other words your income may go up or you may acquire more assets such as purchasing a home, that judgment could rear its ugly head and affect you 10 years down the line or even further.

It seems to me that even if you are judgment proof at the moment, most people are not to stay that way for ever, so it’s probably a good idea to handle the problem now and not just wait for it to go away unless you’re on permanent disability or retire and only receive Social Security payments or something like that.

Negotiate with your creditors

If you’ve looked into bankruptcy and decide it’s not a good option for you, your creditors may be open to negotiation. It may be a good idea to hire somebody to handle this for you, such as an attorney, or a legitimate debt negotiation service, but in my case, before I file chapter 7 bankruptcy my creditors were willing to accept on average about $.25 on the dollar to settle the debts.

One thing you want to be wary of however, are people trying to take advantage of you. Your creditors are no exception to this, and I’ve heard many stories of creditors agreeing to settle for a fraction of the total debt only to then turn around after accepting payment and deny that they ever agree to anything. This is why it’s absolutely vital that you protect yourself and get everything in writing from any debt collectors before making any payments; or perhaps consult with a legitimate debt negotiation service to help you through the process.

I say “legitimate” debt negotiation service because there are quite a few services out there that only exist to take advantage of unsuspecting people facing financial difficulty, so it’s important you find a reputable company to work with. There are a number of places you can get this information from, such as your local bankruptcy court, a bankruptcy attorney, or simply browse the web and find a company with solid reviews. Nonetheless, you have to be smart and keep your eyes peeled at all times for people trying to take advantage of you. In other words, don’t get lazy and just hand over money to someone and expect all your problems to go way. You really need to put in the work to research and understand your situation so that you can prevent yourself from being taken advantage of.

The downside to a repayment plan is that if you miss a payment your creditors may pull out and come after you for the full amount, regardless of how hard you’ve tried in good faith to settle the issue. Just remember that if they can take advantage of you they probably will, so arm yourself with information and support so that you limit the possibility of this happening.

Chapter 13 bankruptcy

I filed chapter 7 bankruptcy and I spent very little time looking into chapter 13 bankruptcy, so I certainly can’t talk with any credibility about what it’s like. But from my research it seems that chapter 13 bankruptcy is a good option for you if you would prefer to repay some of the debts you owe without the worry of handling some sort of debt repayment plan and the negotiations required by yourself.

Chapter 13 bankruptcy is basically a debt repayment plan during which you repay a portion of the debts, usually a small portion from what I understand, over the course of several years.

In conclusion, there are plenty of options available to those not wish to file chapter 7 bankruptcy. The best option for you is something you’ll have to decide for yourself based on your own research and perhaps help from an attorney or other consumer financial assistance organization.

Can I keep my house in Chapter 7 Bankruptcy?

Many people who own a home and plan on declaring bankruptcy wonder if they will be able to keep their home or if it will be taken alive. This is obviously a valid concern, but it’s important to remember that the goal of bankruptcy is to give you a chance to recover from your financial hardships and not to simply take everything you own. That said, it makes sense that the laws allow for you to keep certain things in order that you can land on your feet and make a recovery. Your home is no exception to this.

When I file chapter 7 bankruptcy I own practically nothing, including a home, so this information is only what I found through research, but hopefully it will give you some insight into what to expect.

In my research I found that almost every state, if not all of them, have some sort of homestead exemption which allows you to exempt a certain portion of the value of your home. What this means is that if you have some equity in your home you may be able to keep it, however if you own your home outright, it’s likely that you will either have to sell it or work out some sort of arrangement with the trustee that will allow you to keep, such as paying the trustee and amount of money not covered by your state’s exemption rules for your house.

So I’m looking at the California system to exemptions detailed in the NOLO book and it seems that California system to allows for a $20,725 homesteaded. It’s my understanding that this means you can keep $20,725 in home equity, however, if you have more than that amount and equity in your home, and there are no other exemptions you can apply to your home, such as a wild-card exemption, you may have to sell the home. However, if you have up to $20,725 in equity in your home, but no more, you can keep it as long as you continue to make payments on the mortgage. Of course, if at any time, no matter what you decide to do, you are no longer able to make payments on the mortgage, the bank will probably try to repossess the house.

Of course, if you own a $1 million house free and clear, the trustee is not going to allow you to keep that house because by selling it, you would likely be able to pay back a significant portion of your debts.

With plummeting home values in recent years, some people find themselves in a situation where they’re underwater on their home mortgage. I personally know someone who file chapter 7 bankruptcy and was than just the situation. That particular person sold his home using a method called a “short sale,” which is where your bank agrees to allow you to sell the house for less than you owe on the mortgage. The purpose of this is so that the bank can avoid the cost associated with for closing on the house, since that cost them quite a lot, and they can at least recover the sale amount minus fees of course. If this case applies to you, you should coordinate between your bankruptcy attorney and a Realtor who specializes in short sales in order to see if this is a viable option in your particular circumstance.

Other states have different homestead exemptions and the NOLO book is a great resource for figuring out what your state’s exemptions are and how they apply to you. Also, your attorney will no doubt have this information and be able to advise you appropriately.

Can I keep my car in Chapter 7 Bankruptcy?

When filing chapter 7 bankruptcy, you may be worried about keeping your car, especially if you have a job that requires transportation… and I’m sure most people do.

When I filed chapter 7 bankruptcy, I had already sold my car over a year earlier because I was working for myself at home, but I did do some research on the topic.

What I found depend on your particular situation. If you’re currently leasing your car, it’s my understanding that if you want to continued at least you have to continue making payments on the car, and in that event, you are supposed to contact the company that holds your lease and tell them you are declaring chapter 7 bankruptcy what you’d like to continue making payments on the car in order to keep it. I’m not sure whether you have to file some sort of reinstatement in this situation since a leased car is technically not something you own but rather something your renting, so you should look into that if this applies to you.

If you own your car, the value of the car may be covered by your state exemption rules. I stated in a previous article that the exemption rules vary dramatically by state and you can find those rules online somewhere (just search Google) or you can pick up the NOLO book entitled How to File for Chapter 7 Bankruptcy. For example, I’m looking at the California system one exemptions in the NOLO book right now and it includes a motor vehicle exemption of up to $2550. That means if you have a vehicle and use California system one exemption rules you can keep your car if it’s worth $2550 or less. If your car is worth more than that, say $6550, you would be allowed to pay the trustee the difference, $4000 in this case, and keep the car. While $2550 is not very much money for car, many states’ exemptions include some sort of wild-card exemption that you can apply to any asset. For instance, California’s system two exemption rules allow you to apply any unused portion of the homestead exemption, a total of $20,725, to any property at all… so under California’s system two exemption rules you can apply any portion of the homestead exemption to the remaining nonexempt amount of your car.

From my research it seems that the more assets you have, and the more different types of assets you have, the more complicated these exemption rules can be. They’re certainly not beyond understanding, you just have to spend some time reading the exemptions and take a full inventory of all your assets in order to see what is exempt and what is not exempt.

Obviously, if you hire an attorney to handle your bankruptcy case here she can figure out all this stuff for you.

As an aside, it’s worth noting, as someone who handled his chapter 7 bankruptcy case pro se, meaning I handled it without an attorney, if you can afford an attorney at all it’s probably worth getting one. I didn’t have a job when I filed, so I didn’t have much else to do other than learn the bankruptcy rules, but if I had a job, the first thing I would’ve done would have been to hire an attorney, if for no other reason than the sheer amount of time it takes to understand all the bankruptcy laws that apply to you.

One thing I haven’t talked about, is what if you don’t own your car completely, what if instead you make payments on a car you bought with an auto loan? In that case, you can choose to maintain that debt through your bankruptcy in order to keep the car, but you obviously have to be able to afford to continue making payments. In such a case you have to notify the lien holder — the lien holder is the financial institution that holds the loan — that you intend to continue making payments and keep the car. It’s important that you notify them, and that you include this information in your bankruptcy paperwork, otherwise when the company appears that you are filing bankruptcy they may assume that you do not plan to keep the car and moved to repossess it.

So, in conclusion, you can keep your car if you continue to make payments or, in the event that you own your car outright, you can keep it if the full value of the car is covered by your state exemption rules or if you’re willing to pay any amount not covered by your state exemption rules to the trustee.

Sifting through the debt collectors’ lies

If you’ve been behind on any debt at all, you may have had the unfortunate experience of dealing with debt collectors. Unfortunately, debt collectors often use overly aggressive and sometimes downright illegal tactics to try and get you to send in payments.

In cases like this it can help to know what debt collectors can and cannot do so that you don’t have to add stress to an already stressful situation.

I’ve heard stories of debt collectors threatening prison in order to try and pressure someone to repay their debts. I’ve even heard stories of debt collectors calling neighbors of the debtor and telling them that the debtor is a bad person and doesn’t want to repay their debts. It’s my understanding however, that both of these tactics are totally illegal, but I hear stories all the time of them happening. The only reason such tactics are allowed to continue is because most consumers don’t know what power a debt collector really has.

In fact, a debt collector has very little power at all. Of course, if you have some sort of income, they can file a civil suit in an attempt to win a judgment that will allow them to garnish your wages, but even in that situation they can only garnish a small percentage of your total wages… they can’t just take everything you own.

That’s really all debt collectors can do, other than threaten you with harsher action in hopes that you don’t know any better and will send in payments. The goal of this, and most people are not aware of this fact, is to get you to send in any amount at all because the statute of limitations on collecting a debt is something around seven years from the date of the last action on the account. What that means, is if they can get you to send in even five dollars once a year, they can continue to expand that statute of limitations indefinitely. However, if you never send in anything, and never declare bankruptcy, the debt will simply be wiped out after seven years; at least that’s my understanding on the topic. Of course, you should always consult an attorney regarding this because I’m certainly not one and am only speaking for my own experience here.

Debt collectors cannot do anything other than sue you in order to gain a judgment or to try and see some of your assets. Additionally, consumers have rights that protect them against shady debt collection practices. For example a debt collector is not allowed to call your neighbor and tell them that you’re in debt and refuse to pay your bill… that’s just illegal, and you can in fact sue the debt collector if something like this happens and you’re able to somehow prove in court.

You also have protections against repeated arrests and by debt collectors. For example, if they call you at work you can send in a letter demanding that they stop calling you will work in legally they have to abide by your wishes. It’s my understanding that they can continue to call you at home, however, I’ve also heard that you can send a letter requesting that they stop calling you at home and state that you refuse to pay the debt and they have to stop collection actions. At this point in time they’ll either try to obtain a judgment against you, or, in the event that your judgment proof, they could just sit on the account and wait until you have some income or assets that they can obtain a judgment against. Again, they only have seven years from the date of the last activity on the account to make their move.

While seven years may seem like a long time for most people, and it surely is if you plan on moving on with your life, getting a new job, buying a house, a car, or anything else. But for someone that is permanently disabled, for example, and is unable to get a new job anytime in the near future, that seven-year period may actually expire before that person owns anything worth taking.

I’ve said it before and I’ll say it again, I’m not an attorney and you should certainly consult an attorney regarding this because the law is always changing and every situation is different. So only take anything I say here with a grain of salt knowing that it is only information I’ve found through research and my own personal experience in handling my chapter 7 bankruptcy case pro se.

Chapter 7 vs Chapter 13 Bankruptcy

Chapter 7 in chapter 13 are the two main types of bankruptcy for individuals. If you, as an individual, are considering filing bankruptcy one of these two will likely be the one you use. Now, which one you use depends on your goals and your current situation; probably much more on your current situation than your goals.

Chapter 7 bankruptcy is also known as “liquidation” and is where all, or most all of your debts are wiped clean and you essentially start from scratch. Of course, there are exceptions to this, such as things that cannot be discharged through chapter 7 bankruptcy including student loans, government debts, taxes, and a few others, but of the two options, chapter 7 is the one that most closely resembles the “clean slate” approach.

During the chapter 7 bankruptcy you have to disclose all of your assets in the trustee assigned to your case decides what to do with those assets, whether it be repay your creditors or, if you don’t have enough assets, to simply wipe your debts clean and let you keep everything.

A chapter 7 bankruptcy is really designed for those or looking for a completely fresh start and do not have many assets at all or much income in order to repay their creditors.

Chapter 13 bankruptcy

Chapter 13 bankruptcy, on the other hand, is essentially a debt repayment plan where you’re not obligated to repay all of the debts UL, but the trustee works with youth come up with a suitable dollar amount that you can afford to repay on a regular monthly plan.

This type of bankruptcy is really geared toward those who have enough income or assets to not qualify for chapter 7 bankruptcy; either that, or they qualify for chapter 7, but don’t want to surrender all of their assets as a result. Income is a large determining factor in choosing the right form of bankruptcy; if you have enough disposable income you may not qualify for chapter 7 bankruptcy and will either have to go with chapter 13 or not file altogether.

A chapter 13 bankruptcy you also disclose all your assets and income, however, that information is used by the trustee in order to design a debt repayment plan that will compensate your creditors for some of the debt you owe them. Now, you may be thinking, why would anyone choose chapter 13 bankruptcy if they have to repay their debts anyway, why not just repay them on your own? Some people find themselves in a situation where they may still have a decent job, a home, a car, and don’t want to lose any of those assets, but for whatever reason, find themselves much too far in debt to be able to repay the full amount in a reasonable timeframe.

For example, if you recently had a business go under, you may be saddled with hundreds of thousands of dollars in debt and, even though you were able to find a decent paying job afterwards, there’s just no way you could pay back that amount money in any reasonable amount of time. In such a case, you’d work with the bankruptcy court to come up with a payment plan in which you would repay some percentage of the full amount over the course of several years, or whatever is deemed reasonable considering your income and assets.

So to summarize, the basic difference between chapter 13 in chapter 7 bankruptcy is that in chapter 13 bankruptcy you repay a fraction of what you owe in order to be able to keep your income and assets, whereas chapter 7 bankruptcy allows you to almost entirely wiped the slate clean in the event you don’t have any income or assets to protect. It may help to think about chapter 7 bankruptcy is a total liquidation and chapter 13 bankruptcy as a settlement of your debts for much less than you actually owe.

Does Chapter 7 Bankruptcy Make Financial Sense?

One important question that you may not even have asked yourself is, does bankruptcy even make financial sense for me? Of course, that the decision you’ll have to come to on your own, but I can give you a little information about how I came to the decision to file for Chapter 7 bankruptcy.

Judgment proof?

When creditors are trying to collect payment from you, especially when the account has been sent to a collection agency, they can use some very questionable, and downright unethical tactics to try and get you to pay some of the money you owe them. I’ve heard stories of people who were threatened with prison time by collection agents, which is totally ridiculous, because collection agents have no such authority and only use such scare tactics to frighten people into paying even small amounts of money.

One thing the creditors told me when they called me was that they could get a judgment and I would be forced to pay them or they could garnish my wages. Technically, it’s true that they could get a judgment, but in my case it wouldn’t be worth it. Why? Because I was judgment proof. Essentially, that means I didn’t have any assets or income worth taking, so even if they went to court to try to garnish my wages, they would soon find that I didn’t have any wages to be garnished. The same company would call me over and over and over and threaten to garnish my wages and I would tell them over and over and over that I had no wages to be garnish so they could go ahead and try, yet they would still call every week saying they were to garnish my wages.

I also didn’t have any assets worth taking, at least not in their eyes; everything I owned couldn’t be sold for any more than a few grand, so after all the expenses the collection companies would have to pay in order to see even sell any property I own, there wouldn’t be anything left from the sale, in fact, they’d be in the hole.

Because of all this, I could technically live out the rest of my life judgment proof, and the creditors would never be able to do anything about it. Of course, in order to be judgment proof you really have to have almost nothing, and that’s no way to live out the rest of your life, but it’s good to know if you are judgment proof because it makes those weekly or daily phone calls that much less stressful knowing that the collection agents, in spite of their threats, cannot do anything.

Will bankruptcy discharge all of your debt?

Unfortunately, chapter 7 bankruptcy will not discharge every single day you have in some circumstances. In my case, I had quite a few student loans, as well as some back taxes that needed to be paid, and the court fine from a traffic infraction several years ago. Now, I can’t speak to the court fine, because the state of California “acquired” my state income tax refund when I did finally get around to filing my taxes in order to pay the court fine.

However, I was told that back taxes should be paid before I file bankruptcy; admittedly I wasn’t too clear on this, but wanted to get my taxes from prior years taking care of anyway, so I just went ahead and paid my taxes before filing since I didn’t really owe that much. It’s my understanding that government debts, court finds, taxes and the like cannot be discharged even through chapter 7 bankruptcy.

Student loans are another type of debt that cannot be discharged. I’ve heard there are exceptions in certain circumstances to this, so you should consult an attorney if you have student loans that you’d like to be discharged through bankruptcy, but I wouldn’t count on it happening.

Additionally, I’ve read that back child support and alimony, debts from a marital settlement or divorce, and judgments related to a drunk driving conviction cannot be discharged either.

It’s also my understanding that there a number of cases in which a creditor could mount a successful challenge to the discharge of a particular debt if, for instance, you acquire that debt through fraud or something like that. If your case has any complications like this, you really should hire attorney to handle it, or at least speak with one.

What about cosigners?

At some point in time my mother cosigned for student loan while I was in college, and so, had that student loan been able to be discharged, my mother would have been stuck with a debt, even after I was relieved of its responsibility. Since student loans aren’t usually discharged, this wasn’t really a concern, but if someone cosigned on a car loan for you, and you plan to discharge that debt in bankruptcy, you’ll end up sticking that cosigner with the bill. So, it goes without saying that if you’re worried about sticking other people with your debts that cosigned for you, you may not want to discharge it.

Do you have any valuable property?

If you own any property that won’t be covered by your state’s exemption laws, you may lose it entirely, or have to surrender its cash value to the trustee in order to keep it. So, in that case, things can certainly get a bit more complicated, and you very well may have to give some things up. In my research I found that states differ dramatically in their exemption rules so make sure you’re completely clear on what type of property you can keep an up to what value.

From my research, the more assets you have, the more complicated this can be. Whether or not bankruptcy makes financial sense for you is certainly something you’ll have to examine yourself or with your attorney, but hopefully this provide some insight into my own experience.

Be truthful with the bankruptcy court

There are strict penalties for lying to the court or to creditors during your bankruptcy. While you may be tempted to fudge the numbers just a little bit knowing that the court is basically taking your word for it, the trustee does have the power to investigate further and can find out that you lied. In such a case your bankruptcy could be discharged, converted to a Chapter 13 bankruptcy, which means you’ll still have to repay many of your creditors, or you could face harsher penalties.

Now, even though you may not intend to lie on your bankruptcy papers you should be aware of some things that may raise a red flag to the trustee when handling your bankruptcy case. In fact, maybe you did some of these things thinking that it was just fine, and that’s understandable, but if so, you should definitely consult a bankruptcy attorney before proceeding with your case.

So, what are some of these things you may ask? Well, here’s the list of no-no’s:

• Unloading assets to your friends or relatives
• Incurring debts for luxury items when you were clearly broke
• Concealing property or money from your spouse during a divorce proceeding

Also, it’s probably not a good idea to try and hide any assets from the court, even knowing that the trustee will probably just take you at your word that everything you list is everything you own, because if you get caught, well, I’m sure bad things happen.

It’s my understanding that some of the following things can also cause your case to be dismissed:

• If you fail to explain how you got so deeply in debt
• If you fail to explain what happened to money you received recently
• If you’re unemployed by choice
• If you cannot account for cash advances you spent in the last year

Apparently, the US trustee has accountants on payroll audit one out of every 250 cases filed, so once again, just make sure you are as thorough as possible when completing your documents and that you’re as honest as possible with the trustee. In my case I told the trustee perhaps more than he needed to know, but I only did that so that he would be sure that I was being honest and not trying to hide anything.

And please remember that everything I write here on this website is only information I’ve learned through my own personal experience with bankruptcy as well as through reading books and online forums during the course of my bankruptcy so that I could better understand the process. Nothing I say here on this site should be taken as legal advice in any way because I’m not an attorney and I in no way qualified to give legal advice, everything on this site is only meant to be used as a summary of what my experiences were, you may in fact find that your experiences are quite different. So, let me make it clear again, that you should absolutely consult an attorney concerning anything I cover on this website.

More steps in the Chapter 7 Bankruptcy Process

Personal financial management course

All debtors must attend a course on managing finances in order to receive your discharge. The US trustee approved certain courses and providers to be used to build this obligation. You can find a list of approved agencies at the US trustee’s website at www.usdoj.gov/ust. Like I said in a previous article the scores cost anywhere from $10-$30, at least it did when I took it, and it’s my understanding that if you are unable to pay for the course, you may be able to receive it free of charge… however, I believe you have to go to some extent to prove that you are unable to pay the small price for the course.

The bankruptcy discharge

As of this writing I’m still waiting for my discharge and it’s been about three months since my creditors meeting. Although I’ve heard it can take as little as two months, I’ve also heard from some people that it’s taken as long as 6 to 8 months to receive their discharge. I’m sure that the more complete your papers are and the more simple your cases the faster you will receive your discharge.

You may not understand what the discharge is so let me explain that, quite simply, it essentially means that your case is over… in other words, you are debts have been discharged.

After bankruptcy

Once you receive your discharge you’re free to go about your financial life as normal… that includes applying for any loans, mortgages, or credit cards, however, you may find it difficult to get any of those at first. From what I’ve read, and the trustee has told me, there are certain things you must report to the court even after your discharge. This includes things like insurance proceeds, inheritance, or proceeds from a divorce settlement, so if any of those apply to you, where there are any other situations that occur after your discharge, you should consult an attorney as to whether or not you have to report that to the trustee.

Many people are worried that it may be difficult to get a job after bankruptcy and that an employer could pass you over for someone else because you have a bankruptcy on your record. This is a valid concern, and it’s one that I share, and I’m sure that in the lawyer, if you are she works on Klein, could discriminate based on the fact that you file bankruptcy. However, the law is on your side on this one, and it states that an employer is not able to discriminate based solely on the bankruptcy… nonetheless, it’s my understanding that there are exceptions to this rule.

I used to work in the mortgage business and frequently saw people only two or three years out of bankruptcy with 680 and above credit scores, which is good, and means that if you’re responsible, you should have no problem rebuilding your credit and continuing your life normally only a few years after your bankruptcy is discharged.

You cannot file another chapter 7 bankruptcy case until eight years have passed after your previous filing date. So from now on, you really need to be careful with your finances, for your own benefit, and because you won’t be able to take advantage of the bankruptcy laws to file another chapter 7 case for at least eight years. I believe however, you can file Chapter 13 within eight years of your Chapter 7 filing if need be, however, you can receive a Chapter 13 discharge until four years have passed since you filed for your previous chapter 7.

The 341 meeting of creditors

As explained in a previous article, you will receive notice of the date that your creditors meeting is to be held. My creditors meeting, also known as the 341 meeting, was held about two months after I filed my papers. My meeting was held at the courthouse where I filed my papers and consisted of me and the trustee who interviewed me; none of my creditors even showed up to that meeting.

The trustee runs the meeting and, at the beginning, will swear you in under oath and then begin to ask you questions about your bankruptcy and the documents you filed. My understanding is that there are a series of standard questions the trustee will always ask you as well as some clarifying questions in case anything was not clear in your documents.

Some standard questions he or she may ask you include whether or not you’ve given anything away in the last year and whether the information you put in your papers is 100% accurate. In my case, the entire questioning lasted only a matter of minutes.

It’s my understanding that creditors rarely attend this meeting, but if they do they will have a chance to question you under oath. It’s my understanding that in most Chapter 7 bankruptcy cases this is the only personal errand, aside from filing your papers, that you will have to make… In fact, you can actually file your papers by mail if you really want to.

What happens to your property

In your bankruptcy papers, you’ll be asked to fully explain your current financial situation, including listing all of your assets and any debts (liabilities) that you have. In your papers you have the opportunity to claim certain assets as exempt, which means the trustee will not even consider those to be used to repay your creditors. Each state has different exemption rules and you should consult an attorney or read the NOLO book to find out the exemptions that apply to you.

If, after your 341 meeting, your trustee determines that you have non-exempt assets, those assets may be sold in order to repay your creditors. I believe you also have the opportunity to pay the trustee a specified amount of cash in exchange for keeping those assets.

It’s my understanding that the trustee is unlikely to search your home or seized any assets you have, but he or she will order you to turn over any nonexempt property if it’s determined that you have nonexempt property that should be used to repay your creditors.

Even if you have nonexempt property it may not be worth very much, or it could be hard to sell, in which case the trustee would probably “abandon” it, which means you will get to keep it even though it’s nonexempt.

Secured debts

If you pledged property as collateral for a loan, that loan is called a secured debt. Most car loans are debts secured by your car, and most home mortgages are secured by your home. It’s my understanding that if you keep current with those payments you can keep the property through bankruptcy. However, if you do not keep current on the payments, that property can be seized and returned to the creditors.

Filing your bankruptcy papers

To begin a Chapter 7 bankruptcy case, you must complete a packet of papers that is known as your bankruptcy petition. This packet of papers is where you will describe in detail your complete financial situation. These documents should be filled out as accurately as possible and will be used by the trustee in determining whether or not to discharge your bankruptcy.

Although the packet is quite large, many of the forms do not require much time to complete and are fairly simple and straightforward.

Once you file your bankruptcy petition you will receive a notice from the court telling you when you’re 341 meeting is set to be held. The 341 meeting is also called a meeting of creditors, and is where your creditors will have a chance to speak with you and the trustee.

At your 341 meeting your trustee interviews you about your financial situation and how you got into debt as well is why you are filing for bankruptcy. Your creditors have the opportunity to show up at this meeting and ask you questions as well as speak with the trustee. However, most creditors don’t even show up for the meeting in a Chapter 7 case.

The automatic stay

In many cases, when people file for bankruptcy protection, they have already faced perhaps months or even years of arrests made from creditors trying to recover their money. Filing for bankruptcy puts a stop to all collection actions immediately upon filing the papers with the court. Your creditors will be notified of your bankruptcy, however you may continue to receive calls for a short period after that. In that case, give the credit for your attorneys phone number or, in the case of pro se filers, the creditor will want to know your bankruptcy case number, after which they should no longer try to contact you.

The court controls your finances

Once you file a Chapter 7 bankruptcy, everything you own is in the hands of the trustee… Now that does not mean he or she will take possession of your things, in fact they probably won’t, what that means is that it’s up to the trustee to decide whether to sell your things to pay back your creditors or to allow you to keep all your possessions. In my case, and in most other cases I’ve heard about, the Chapter 7 filer is able to keep all of his or her possessions because, in a Chapter 7 case, you usually don’t have that much left.