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The basics of filing for Chapter 7 bankruptcy

Chapter 7, or liquidation bankruptcy, may help people to discharge certain types of debt and start fresh.

When Colorado residents are suffering from a substantial amount of debt, they may make the decision to file for bankruptcy. Bankruptcy may have a negative effect on a person’s credit record. However, it can help people break free from the overwhelming stress of debt. Bankruptcy can also stop harassing creditors from calling and enable people to begin a fresh financial start. Although there are several types of bankruptcy, including Chapter 11 and Chapter 13, Chapter 7 is the most common. Out of the 936,795 bankruptcy cases filed in 2014, approximately 619,069 cases were for Chapter 7.

How is Chapter 7 different?

Otherwise known as liquidation bankruptcy, Chapter 7 helps people wipe out much of their financial debt. Unlike Chapter 13 bankruptcy which structures a debtor repayment plan, debtors do not have to repay the discharged debt in a Chapter 7 case. People may, however, lose certain items that are not exempt under state statutes, according to U.S. Courts. Any property or items that are repossessed by the trustee who is appointed over the case may be sold and distributed to the creditors involved in the bankruptcy.

Qualifying for Chapter 7

Not everyone who wishes to file for bankruptcy can qualify for Chapter 7. Debtors must pass a state median income test or a “means” test in order to qualify for filing a Chapter 7 bankruptcy. The median income test measures the applicants income against the median income for a family of the same size in Colorado while the “means” test determines whether or not there are funds available to pay to creditors after deducting expenses allowed by the bankruptcy code. If the applicant passes either of these tests then they qualify to file a Chapter 7 bankruptcy. In addition to passing the median income or “means” test, the applicant must complete and submit the following:

  • A certificate showing that he or she has successfully completed a credit counseling course.
  • A list of all assets, sources of income, debts and monthly financial obligations.
  • Copy of his or her most recent tax returns.
  • Copy of his or her paycheck stubs.
  • A list of all of the creditors, as well as how much he or she owes each one.

In some cases, the applicant will have the opportunity to reaffirm debt, such as an auto loan or a home mortgage although it may not be necessary in order to keep the property securing the loan. Reaffirming a debt makes the applicant responsible for a debt that was discharged in the bankruptcy case and while it may be required by the lender in some cases for auto loans, it may not serve a useful purpose to reaffirm a mortgage loan on a residence and may not be necessary.

Meeting of creditors

After all of the bankruptcy paperwork has been filed, a meeting of creditors is scheduled. All of the creditors involved in the case are invited to attend and ask any questions they have regarding the bankruptcy. The trustee oversees the meeting and may also ask questions regarding exempt property, income, debt and any other topics related to the bankruptcy.

Getting legal help when filing for bankruptcy

Going through a bankruptcy can be overwhelming. Not only is there a lot of crucial paperwork that must be filled out correctly and submitted on time, but there is also the risk of losing your property. Many people who file for bankruptcy in Colorado choose to speak with an attorney regarding their legal options. A lawyer can also help walk you through the bankruptcy process and increase your chances of having your debt discharged.

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