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Filing for Chapter 7 bankruptcy can be one of the most difficult financial decisions you’ll ever face, but for many, it offers a real chance at a fresh financial start. If you’re overwhelmed by debt and struggling to keep up with payments, Chapter 7 may allow you to eliminate most unsecured debts and start rebuilding your life.
At American Legal Shield, we’re here to help you understand your legal options and guide you through the process with clarity and confidence. Below is a step-by-step guide to help you understand how Chapter 7 bankruptcy works and what you can expect from start to finish.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is also known as “liquidation bankruptcy.” It is designed to wipe out unsecured debts such as:
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
- Collection accounts
In exchange, some of your non-exempt property may be sold by a trustee to pay creditors. However, many people who file Chapter 7 keep most or all of their property, thanks to exemption laws.
Step-by-Step: Filing Chapter 7 Bankruptcy
Step 1: Determine Eligibility
To file Chapter 7, you must pass the Means Test, which compares your income to the median income in your state.
- If your income is below the threshold, you qualify.
- If your income is above, further calculations are required to determine eligibility.
A bankruptcy attorney can help you complete the Means Test accurately.
Step 2: Gather Your Financial Documents
You’ll need to provide detailed financial information, including:
- Income statements (pay stubs, tax returns)
- Bank account balances
- Credit card and loan statements
- Property deeds or car titles
- Monthly living expenses
Proper documentation is key for a smooth filing.
Step 3: Complete Credit Counseling
Before you can file, the law requires you to complete a credit counseling course from an approved agency. This course typically takes about an hour and can be done online or by phone.
You’ll receive a certificate of completion that must be filed with your bankruptcy petition.
Step 4: File the Bankruptcy Petition
This is the official start of your bankruptcy case. You’ll file your:
- Voluntary petition
- Schedules of assets and liabilities
- Statement of financial affairs
- Certificate of credit counseling
Once filed, the automatic stay goes into effect. This stops creditors from contacting you, garnishing wages, or pursuing legal action.
Step 5: Trustee Appointment and Case Review
After filing, a bankruptcy trustee is assigned to your case. They will:
- Review your documents
- Check for accuracy or fraud
- Determine if any non-exempt property can be sold to pay creditors
You must cooperate fully with the trustee and provide any additional information requested.
Step 6: Attend the 341 Meeting of Creditors
About 20 to 40 days after filing, you’ll attend a short meeting (usually under 10 minutes) with the trustee. Creditors can also attend but rarely do.
You’ll answer questions about your finances and confirm the information in your petition. Be honest and prepared.
Step 7: Take the Debtor Education Course
After the 341 meeting, you must complete a financial management course from an approved provider. This is different from the initial credit counseling course.
Once completed, you’ll receive another certificate that must be filed with the court.
Step 8: Receive Your Discharge
If all steps are completed correctly and no objections are filed, you will receive a discharge order from the court—usually within 60 to 90 days after the 341 meeting.
This discharge eliminates your liability for most unsecured debts, giving you a clean financial slate.
Step 9: Rebuild Your Credit and Finances
After discharge, it’s time to rebuild. Start by:
- Creating a monthly budget
- Paying all bills on time
- Monitoring your credit report
- Securing a low-limit credit card or secured card
- Saving regularly, even in small amounts
Bankruptcy stays on your credit report for 10 years, but many people begin seeing improvement much sooner by using smart credit habits.
When Should You Consider Chapter 7?
You may want to consider Chapter 7 bankruptcy if:
- You’re facing wage garnishment, lawsuits, or collection calls
- Your debts far exceed your income
- You have little to no disposable income after essentials
- You’re using credit cards or loans just to pay bills
- You’ve tried other solutions with no success
How American Legal Shield Can Help
Bankruptcy can feel intimidating, but you don’t have to go through it alone. American Legal Shield offers:
- Personalized case review
- Referrals to trusted bankruptcy attorneys
- Help understanding exemption laws
- Protection from abusive debt collection
- Guidance through every step of the process
Contact Us Today
Phone: (888) 508-6205
Email: [email protected]
We’re here to help you reset your finances and move forward with confidence.
Final Thoughts
Chapter 7 bankruptcy is not a failure—it’s a legal solution created to help people overcome financial hardship. If you qualify and follow the process correctly, it can be a powerful tool for wiping out debt and rebuilding your financial future.
Take the first step toward peace of mind. Reach out to American Legal Shield to find out if Chapter 7 bankruptcy is right for you.
