Chapter 7 bankruptcy is an important debt relief tool for Americans in severe financial distress from losing a job, getting injured, or getting divorced. Upsolve walks you through the steps on how to file for Chapter 7 bankruptcy and get your fresh start in 10 steps.
Written by Attorney Andrea Wimmer.
Updated September 24, 2020
First, you need to determine whether filing bankruptcy will help you. Bankruptcy is a powerful debt relief tool, but only if it makes sense for your financial situation. Filing any type of bankruptcy provides immediate debt relief through the automatic stay. That’s the law that prohibits creditors from contacting you as soon as your bankruptcy case has been filed. It also stops a wage garnishment right away.
Chapter 7 bankruptcy is a very effective tool for erasing credit card debt, medical debts, and most other unsecured debt. Although Chapter 7 is a liquidation bankruptcy, filers are able to keep all their property in more than 90% of all consumer bankruptcy cases in the United States. You can file bankruptcy under Chapter 7 once every 8 years.
Chapter 13 bankruptcy is another type of bankruptcy available to consumers. The main difference to Chapter 7 is that you pay back some of your debts through the Chapter 13 trustee. Your monthly payment is based on how much you’re able to pay. This is determined by the means test analysis, your actual income and expenses and the terms of your repayment plan.
A bankruptcy discharge does not wipe out certain non-dischargeable debts like most student loans, child support obligation, alimony, and recent tax debts. If you have any cosigners, they will not be protected by your personal bankruptcy.
If you have great credit when your Chapter 7 bankruptcy is first filed, your credit score will likely drop a bit once the bankruptcy filing is reported to the credit bureaus. Of course, most filers have been struggling for a while by the time they file, and already have a pretty low credit score. Either way, once granted permanent debt relief in the form of the bankruptcy discharge, most people are able to rebuild their credit score in less than one year.
Collect Your Documents
Your first step is to collect all your financial documents so you understand the current state of your finances.
Start by getting a free copy of your credit report. You are entitled to one free report from each one of the three credit bureaus per year. Some of your debts may not be listed on your credit report. Common examples include medical bills, personal loans, payday loans, and tax debts. Make a list of all debts not on your credit report so you don’t have to look for the information when you’re filling out your bankruptcy forms.
In addition to your credit report, you will need the following documents:
Tax returns for the past 2 years
Pay stubs or other proof of your income for the last 6 months
Recent bank account statements
Recent retirement account or brokerage account statements
Valuations or appraisals of any real estate you own
Copies of vehicle registration
Any other documents relating to your assets, debts, or income.
Having these documents next to you will help you get an accurate picture of your financial situation.
Take Credit Counseling
Every person who files for bankruptcy has to take a credit counseling course in the 6 months before their bankruptcy petition is filed with the court. This is a requirement in both Chapter 7 and Chapter 13 cases. The course has to be taken through a credit counseling agency that is approved by the Department of Justice.
Credit counseling courses like this one give you an idea of whether you really need to file for bankruptcy or whether you could get back on your feet through some type of informal repayment plan.
The course takes at least one hour and can be completed online or by telephone. The course fee ranges from $10 to $50, depending on the provider. If your household income is under 150% of the federal poverty line, you should be able to get this fee waived.
Once you complete the course, you will receive a certificate of completion. Keep it. Bankruptcy laws require that you provide a copy of this certificate to the court when you file your bankruptcy forms in Step 5.
Complete the Bankruptcy Forms
The bankruptcy forms include at least 23 separate forms, totaling roughly 70 pages. The bankruptcy forms ask you about everything you make, spend, own, and owe. You’ll also include some bankruptcy basics, like what type of bankruptcy you’re filing under and whether a bankruptcy lawyer is helping you.
If you hire a lawyer, they will complete the forms for you based on the information you submit to their office. If you can't afford to hire a lawyer but don't feel comfortable completing the forms on your own, see if you're eligible to use Upsolve's free online bankruptcy service or schedule an appointment with a legal aid provider in your area.
Get Your Filing Fee
The federal court charges a filing fee of $335 for a Chapter 7 bankruptcy. This amount is typically due when the bankruptcy petition is filed with the court.
If you don’t have the funds to pay the filing fee now, you apply to pay your fee in installments, after your case has been filed. You can ask to make up to 4 monthly payments.
If paying in installments isn’t even possible, you can submit another form to apply for a fee waiver. To qualify, your total household income must be under 150% of the federal poverty line. The court will decide whether bankruptcy laws support granting you a waiver. This happens after your bankruptcy petition. If your application is denied, the court will typically order you to pay the fee in installments.
Print Your Bankruptcy Forms
Once you have prepared your bankruptcy forms, you will need to print them out for the court. You must print them single-sided. The court won’t accept double-sided pages. You will also need to sign the forms once they are printed.
You will need:
The petition forms including any required local forms
Your credit counseling certificate
Your paycheck stubs
If needed, your application for a fee waiver or installment plan
Most bankruptcy courts require just one signed original of the petition, but some courts require additional copies. So, before you head out to submit your forms, call your local bankruptcy court to find out how many copies you will need to bring and confirm you have all the required local forms.
Go to Court to File Your Bankruptcy Forms
Once you enter the doors of your local courthouse, you will be greeted by security guards, who will ask you to pass through a metal detector. Once you pass security, you will go to the clerk’s office and tell the clerk that you’re there to file for bankruptcy. They will take your bankruptcy forms and your filing fee (or application for a waiver or to pay the fee in installments).
Do not submit your bank statements or tax returns to the court. These documents go to the trustee after the case is filed. Check out Step 7 below for more info on that.
While you wait, the clerk will process your case by scanning your forms and uploading them to the court’s online filing system. This usually takes no more than 15 minutes.
Once done, the clerk will call you back to the front desk and give you:
Your bankruptcy case number
The name of your bankruptcy trustee
The date, time, and location of your meeting with your trustee (this is called the “Meeting of Creditors” or “341 meeting”)
At this point, your case has been filed! Congrats! The automatic stay now protects you from all debt collectors. But you’re not home yet - there are other steps you need to complete to get a fresh start under Chapter 7 of the Bankruptcy Code!
Mail Documents to Your Trustee
The Chapter 7 trustee is an official appointed by the court to oversee your case and liquidate, or sell, nonexempt property for the benefit of your creditors. Not all types of bankruptcy require the involvement of a bankruptcy trustee, but both Chapter 7 and Chapter 13 cases have one.
Pay attention to mail you receive from the trustee after filing your case. The trustee will send you a letter asking you to mail them certain financial documents, like tax returns, pay stubs, and bank statements. If you don’t send the trustee the requested documents following the instructions provided in their letter, you may not get a discharge of your debts.
Take Bankruptcy Course 2
After filing your bankruptcy forms, you will need to complete a Debtor Education Course from an approved credit counseling agency. It can be completed online or by phone and typically takes at least 2 hours and costs between $10 - $50, unless you’re eligible for a waiver.
The purpose of the course is to educate you on making smart financial decisions going forward but does not provide legal advice about the bankruptcy process. You’ll learn how to prepare a budget and avoid incurring debt with high interest rates.
You’re not eligible to receive your bankruptcy discharge and obtain a fresh start if you don’t complete the course and file your certificate of completion from the credit counseling agency with the court.
Attend Your 341 Meeting
Your 341 meeting, or meeting of creditors, will take place about a month after your bankruptcy case is filed. You’ll find the date, time, and location of your 341 meeting on the notice you’ll get from the court a few days after filing bankruptcy. Due to the COVID-19 pandemic, all 341 meetings are held either by video conference or via telephone until at least October.
The main purpose of the 341 meeting is for the case trustee to verify your identity and ask you certain standard questions and most last only about 5 minutes. Your creditors are allowed to attend and ask you questions about your financial situation, but they almost never do.
❗❗ You must bring your government-issued ID and social security card to the meeting. If you don’t bring an approved form of both, the trustee can’t verify your identity and the meeting cannot go forward. You should also bring a copy of your bankruptcy forms to the meeting, along with your last 60 days of pay stubs, your recent bank statements, and any other documents that your trustee has asked for. ❗❗
Dealing with Your Car Loan
If you own a car that you still owe on, you’ll have to let the bank and the court know what you want to do with it one one of your bankruptcy forms.
If you want to surrender the car to the lender and discharge the debt, you don’t have to do anything other than stop making your payments. The bank will either file request with the bankruptcy court to ask permission to retake the car, or wait until your discharge is granted before picking it up.
If you want to keep the car, you can either reaffirm the loan or redeem the car. If you’re reaffirming your loan, the bank will send you a reaffirmation agreement after your case is filed. You have to complete and sign the agreement and return it to the bank within 45 days from your 341 meeting. The bank files the signed agreement with the court for approval.
To redeem the vehicle you have to file a motion with the court and, once granted, buy the car from the bank for its current value. This gets you out of having to pay the amount left on the loan, but payment has to be made in one lump sum.
Filing for bankruptcy takes some preparation. Hiring a good bankruptcy attorney is one way to file. But if you can't afford the attorney fees to hire one and you need a fresh start, Upsolve may be able to help. If you're eligible, our free web app will walk you through the process and help you prepare your forms for filing with the court.
Check out the video below ⬇️ to see how it works!