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What is the process of a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy involves the liquidation of certain assets of the individual debtor, and creditors are paid off with the proceeds. Pennsylvania residents would file a petition for bankruptcy in a bankruptcy court closest to them. The filing fee is $245, and there is also a $75 administrative fee and a $15 trustee fee. These fees are normally due at the time of filing, but the court may give permission for the filer to pay in installments ending no later than 120 days after the petition is filed. Fees may be waived if the filer's income is less than 150 percent of the poverty level.

When an individual files a petition for Chapter 7 bankruptcy, he or she would also provide to the court a statement of income and spending, a list of assets and liabilities, the most recent tax return and other tax returns that may be filed during the proceeding, proof of financial status and a list of contracts and leases. Spouses who are both filing for bankruptcy must each provide the necessary documents. If the reason for bankruptcy is primarily consumer debt, they must also provide proof of completion of credit counseling as well.

Once the bankruptcy petition is filed, most collection actions must automatically stop. The court will assign a trustee to the case, who will hold a meeting between the debtor and the creditors between 21 and 40 days, but no more than 60 days, after the petition is filed. The debtor will answer questions from both the creditors and the trustee while under oath during this meeting. The trustee will determine if the case will continue.

A Chapter 7 bankruptcy will affect the filer's credit score for several years, but it also provides an opportunity for a fresh financial start. Because of the complicated process of a bankruptcy filing and each person's unique situation, it is advisable to consult with a bankruptcy law attorney before making such a major decision.

Source: U.S. Courts, "Liquidation Under the Bankruptcy Code", September 20, 2014

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