Eligibility

• Only certain people and certain businesses are eligible to file for Chapter 7 bankruptcy. First, anybody filing for Chapter 7 must first participate in credit counseling with an approved (approved by the Bankruptcy Court) credit counseling agency. Then, you must satisfy the "means test." The means test can be somewhat complex, unless your income falls below the median income for your state. For example, if your income is $20,000 annually, but your state's median annual income is $45,000, then you automatically qualify for Chapter 7. If your income is over the median, you must analyze your debts and assets according to a fairly complex legal formula, and you probably need an attorney to help work through that test.
  
  

Bankruptcy Petition

• If you qualify for Chapter 7 bankruptcy then, after completing credit counseling, you will file a petition for bankruptcy. In that petition, you will have to provide intimate details about your financial status, including details about all of your assets, debts, and income for the past few years. You must be thorough, and often repetitive, when drafting the petition, or else the court might throw your petition out.
  
  

Automatic Stay

• One of the biggest advantages of filing for bankruptcy is the imposition of the "automatic stay" which requires all creditors to immediately stop all collection efforts as soon as you file your petition. This means creditors must stop sending letters, making phone calls, repossessions, and foreclosures.
  
  

Bankruptcy Plan

• After filing your bankruptcy petition, you will work with the court and a court-appointed trustee to create a bankruptcy plan. The plan outlines what property you will sell, what debts you will repay, and what debts will be discharged. When a debt is discharged, that means you are no longer legally required to repay the debt, and the creditor is not allowed to try and make you pay the debt ever again. Once the bankruptcy judge approves your bankruptcy plan, creditors have no choice but to live with the plan, even if they get paid nothing.
  
  

What Debts are Discharged?

• Most types of debt can be discharged in bankruptcy, but certain kinds cannot. For example, student loan debts cannot be discharged unless you can show that failure to discharge would result in an "undue hardship" (which is nearly impossible to show). And family obligations, such as alimony and child support, are not discharged. Finally, tax debts typically cannot be discharged either. Other than those few exceptions, most other debts can be discharged including consumer and credit card debt, medical debts, personal loans, and business debts.