Ways & How

how to file for chapter 7 bankruptcy

how to file for chapter 7 bankruptcy

Generally, the concept of bankruptcy, also known as insolvency, refers to the existing incapacity of a certain person, business entity, organization, or enterprise to cover up and make good on any outstanding debts and other monetary obligations to a given creditor. In case you are in a situation like this, then it becomes necessary that you learn how to file Chapter 7 Bankruptcy as a very viable remedy. Technically, there are two kinds of bankruptcy that can be legally initiated. When the petition is initiated or filed by the debtor, it is called voluntary bankruptcy. In the event that the creditors are the one who filed the petition against the debtor, then it is called involuntary bankruptcy. Note, however, that an involuntary bankruptcy may not be legally initiated against a debtor not engaged in any kind of business. If your objective as a debtor is to free your business and yourself from any financial dilemma and later on start anew, then you should follow the following steps on how to file a petition for bankruptcy based on Chapter 7 as provided in the Bankruptcy Code.

  1. Know ahead if Chapter 7 is the best legal remedy applicable to you.

    Chapter 7 should be regarded as a remedy of last recourse, which presupposes that you have heavily exhausted the other legal remedies available to you. To know if bankruptcy is legally applicable to your case, there is a form termed as the “Means Test” which you must accomplish. If, for any reason, you are not qualified to file a Petition for Bankruptcy then what may be applicable to you instead is debt consolidation contained in Chapter 13.

    There are a number of legal services offered online which initially evaluate the case of a given client as to whether or not Chapter 7 is a good legal remedy. You can try it anytime because such a particular legal service is often free of charge.

  2. Engage the services of a bankruptcy lawyer. Although it is legally permissible for a plaintiff to file a bankruptcy case without a lawyer, it is still best that you have your own lawyer to assist you and to safeguard your rights throughout the process. A lawyer expert in credit transaction and banking laws is preferable.

  3. Comply with the mandatory requirement on credit counseling. This requirement is compulsory in nature because if you file your Petition for Bankruptcy without completing such counseling requirement, your case will be motu proprio dismissed. In this item, you will be paying a minimum of $30 to a maximum of $50, although you can apply for a waiver to this effect.

  4. Comply with the necessary documents. Other than your Petition for Bankruptcy, for filing purposes you need to prepare your “Means Test” compliance for the use of the trustee, statement of income and expenses, list of business assets and liabilities, enforceable obligations and contracts, list of debts, existing lease contracts, list of assets that are exempt in nature, and any other financial obligations related to your conduct of business.

  5. Appoint a bankruptcy trustee. The trustee is necessarily appointed to gather the non-exempt assets of the debtor-obligor and eventually sell the same so the properties may be converted into liquid cash. The trustee then shall distribute proportionately the total proceeds of the non-exempt assets to all creditors. Note that while in other bankruptcy cases payment is made to the appointed trustee, such is not the case in Chapter 7.

    Also, at least seven days prior to the so-called “meeting of the creditors,” make sure that you furnish the trustee copies of your latest income tax returns as well as your pay check stubs (pay advices).

  6. Proceed to filing your Petition for Bankruptcy. Your petition must be filed, along with your proof of credit counseling (No. 3 above) and the necessary documents (No. 4 above). The proper forum can either be the bankruptcy court where your principal business is located or the one in your locality.

    The legal principle on “Automatic Stay” with respect to your creditors will come into play once you have perfected the filing stage. This principle is viewed to be equitable hence, applicable to all cases of bankruptcy. All your creditors will stand in equal footing in a sense that neither of them is allowed by law to initiate against you any form of collection suit, garnishment case, asset foreclosures, evictions, repossessions, and even attachment of assets.

  7. Comply with the requirement on Personal Financial Management Instruction Course. This is a post-filing requisite, entirely different from the credit counseling (No. 3 above), which should be accomplished only after you have filed your petition. Again, you will be paying around $30 at most. This item is still obligatory in nature because if you failed to comply your case may be summarily dismissed.

  8. Be present during the meeting of the creditors. In this scenario, which is normally held between three to six weeks after signing the Petition for Bankruptcy, you can bring in your lawyer. This meeting is really unavoidable, especially so if most of the outstanding debts of your business are non-secured in nature. Your presence during the conference is deemed by law fair enough because such is the only opportune time for the creditors to confer with you on the status and condition of your finances and assets relative to their collectibles.

  9. Wait for the decision of the court. There are at least 19 classifications of dischargeable debt in Chapter 7. Remember that Chapter 7 is an available legal remedy only once in every eight years, so, once you obtain a favorable decision discharging you from your obligations, you have to wait for another eight long years before you can file again a Petition for Bankruptcy.

  10. Grab the opportunity to start anew. This is now the fruit of your legal battle, and you can face again the business world afresh. Get on your feet and rebuild your credit score.

Going into business does not promise you a bed of roses. There are always economic downturns that can hit you severely along the way. But any financial predicament pertaining to your business, like bankruptcy, has a corresponding remedy. Just be equipped ahead with sufficient knowledge on how to file Chapter 7 Bankruptcy under the Bankruptcy Code, and you will just be fine.


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