Chapter 7 is what is routinely called straight bankruptcy. What happens is that you file a petition with the Bankruptcy Court seeking relief from all of your unsecured debts. An unsecured debt is one that has no collateral attached to it unlike a car or a furniture purchase that does secure the loan that you took out from the creditor. Regular unsecured debts generally include medical bills, credit cards, collection accounts, judgments on lawsuits, vehicle repossessions and they are usually discharged absent some exigent circumstance like fraud or gambling where the court determines that you are not a good faith honest debtor. Unsecured debts also include things like income taxes, student loans along with fines and restitution payments but those are much more difficult to get rid of and quite often require you to consider filing chapter 13 in order to deal with them more effectively.

How it works is that you file a petition seeking relief in the United State Bankruptcy Court which is Federal Court. By doing so you immediately shut down all State Court actions such as repossessions, foreclosures, wage garnishments and bank levies because the Federal Government is supreme over all fifty states.

Along with the petition you also file a series of schedules that list all your assets, all your debts and detailed budgets of both your income and expenses. You normally get to keep all your assets by using what are called exemptions which cover things like equity in your home, values for your car, jewelry, clothes, furniture, tools and what is called a wild card exemption that you can apply to any asset that you want. You also answer a series of questions contained in what is called “the statement of financial affairs” or “SOFA” for short which seeks to find out things like if you tried to give away assets so your creditors would not get them or if you are in business or if you had foreclosures and so on.

About thirty five to forty days after you file the petition you will go to a Section 341a hearing which is called a “creditor’s meeting”. At that hearing the U.S. Trustee assigned to your case will question you under oath about the documents that you filed with the court. Creditors generally do not appear and usually there are no problems if the case was prepared and presented properly. If you wish to keep cars or RV’s, then you can sign what is called a reaffirmation agreement which basically says that you agree to the terms of the original contract again and want to keep that debt so you can keep the asset. About ninety days after the creditor’s meeting you will receive a discharge in the mail which is a permanent injunction against all collection activity for any debt that was listed on your petition and schedules that you did not reaffirm. At that point in time, your case is complete and you are no longer subject to the Bankruptcy Court and can move on with your life.

The only big problem these days in getting through a chapter 7 is what is called “The Means Test”. In 2005 when the big banks convinced Congress to limit the ability of consumers to file chapter 7, they put in two tests. One is the median income test and the other is the Means Test. If you exceed the median income for your family size in your region of the country, then you cannot file chapter 7 unless you pass the Means Test. The Means Test is this draconian nightmare that makes you live on living standards that are not to an average person’s liking. If you fail the Means Test that you have to file a chapter 13 instead and pay back some or all of your creditors over the next five years.

What I see happen a lot is the inexperienced or discount lawyers who do not know the intricacies of the means test and cause their clients problems that should not have occurred. The really scary part is that once you file a chapter 7, you are subject to the jurisdiction of the Bankruptcy Court and to the discretion of the Trustee assigned to your case. If you made mistakes about assets that you thought you could keep but cannot, it is difficult to get out of it because the Trustee makes money by finding non exempt assets that he or she can sell to pay your creditors. So for people that want to go with the discount lawyer to save a few hundred dollars, hopefully they will think more about that decision and look instead for the best price for a truly competent lawyer. I believe that I am that person and offer my services at competitive rates and the initial consultation is always free.

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Attorney Steven F. Bliss is a debt relief agency under the United States Bankruptcy Code.