The Chapter 7 bankruptcy process is much like applying for a home mortgage in reverse. You'll apply for bankruptcy by completing and filing a lengthy "Chapter 7 bankruptcy petition." You'll also provide financial documents supporting the figures in your Chapter 7 case.
Once complete, the court will unwind many of your existing credit accounts and obligations, possibly even all of them. And while it sounds easy enough, the Chapter 7 bankruptcy process can be daunting. Following these steps will help:
- evaluate whether you can erase debt and keep property
- determine whether you meet qualification requirements
- take a credit counseling course
- prepare and file the bankruptcy paperwork
- turn over financial documents
- attend the required hearing, and
- take a debtor education course.
One of the reasons many people prefer filing for Chapter 7 bankruptcy over Chapter 13 bankruptcy is that the entire Chapter 7 process takes about three to four months to complete.
Chapter 7 Bankruptcy Filing Process: Will Chapter 7 Help You?
Your first step? Determining whether Chapter 7 is right for you. Here’s how you’ll find out.
1. Evaluate Chapter 7 bankruptcy debt dischargeability.
Start by learning whether you can erase enough debt to warrant a Chapter 7 filing.
Filers regularly discharge credit card balances, medical bills, utility bills, personal loans, and money owed on a lease. You can also wipe out lawsuit judgments and business debt that you’re responsible for paying on behalf of a business through a personal guarantee (the company itself can’t erase debt in Chapter 7 unless owned by a sole proprietor).
Debts like recent taxes, domestic support obligations, and student loans are nondischargeable debts—debts you’ll remain responsible for paying after bankruptcy.
2. Consider potential property loss in Chapter 7 bankruptcy.
Filers lose property in Chapter 7, and you might, too. That’s not to say you’d have to surrender everything—you can exempt (protect) property necessary to work and live, such as some home equity, household goods, a modest car, and a retirement account.
The exemption rules aren’t always as straightforward as you might think. If you’ve moved between states during the last few years, you might not be able to use your current state’s exemptions, and the amount of home equity you can protect might be limited.
Also, if, after filing your case, you discover that you’ll lose property you thought you could keep, you won't be able to back out. You’ll need to ask the bankruptcy judge to dismiss the case, and most judges won’t grant the request because of an asset mistake.
Many people find that hiring a bankruptcy lawyer is money well spent when it comes to avoiding issues like these.
3. Determine your Chapter 7 bankruptcy qualification status.
Chapter 7 is for filers without enough income to repay creditors. Follow these steps to determine if you meet the Chapter 7 means test income qualifications.
Take the first part of the means test. Complete the Chapter 7 Statement of Your Current Monthly Income form. If your income is at or below the amount allowed, you’ll pass the means test. Here’s what you’ll do (the nutshell version):
- Add together the gross income earned by all household members over the prior six months and any net business income received during the same time period.
- Divide the total by two and multiply by twelve to get your yearly household income.
- Compare the yearly household income to the figures on the “Census Bureau Median Family Income By Family Size” chart on the U.S. Trustee Program website.
If you don’t pass the first part, take the second. If your gross household income exceeds the median amount allowed in your state, you might be able to reduce your income by deducting monthly household debts. The Chapter 7 Means Test Calculation form determines your disposable income by deducting standard and actual expenses.
The test is lengthy, so check the form for specifics. After subtracting allowed deductions, your “disposable income,” or final total, will fall into one of the following categories (for cases filed between April 1, 2022, and March 31, 2025):
- If you have less than $9,075 of disposable income remaining, you'll qualify for Chapter 7.
- If you have more than $15,150, you won’t qualify for Chapter 7.
- If you have more than $9,075 but less than $15,150, you'll calculate whether your disposable income will pay 25% or more of certain debts. If it will, you won’t qualify for Chapter 7.
If you fail both parts, you might be exempt. Not everyone has to take the means test. You might be exempt if:
- your business debts exceed your consumer debts
- you’re a qualified disabled veteran, or
- you’re a qualified Reservist or National Guard member.
Go to the Statement of Exemption from Presumption of Abuse Under §707(b)(2) form to find the specific exemption qualification requirements.
Additional qualification requirement. Even if you’re exempt or pass the means test, you might not be out of the woods. The court will compare your current income reported on Schedule I: Your Income to your current expenses reported on Schedule J: Your Expenses. If enough income remains to make meaningful creditor payments, the court will convert the case to Chapter 13. Beware, because this requirement is easy to forget.
Chapter 7 Bankruptcy Filing Process: Before Drafting Your Chapter 7 Bankruptcy Filing
Preparation smooths the path of any process, but it’s especially critical in bankruptcy. Here’s what to do to ensure you have the information you’ll need.
1. Take the Chapter 7 credit counseling course.
Everyone must take a course that evaluates whether the filer is a good fit for bankruptcy. Specifically, the course assesses whether you can handle your finances outside of bankruptcy. You can take it up to 180 days before filing, and it’s good to get it out of the way early—you’ll need the course completion date when you fill out the bankruptcy paperwork.
You’ll file the completion certificate with the court, along with the plan if you receive one. Getting a financial plan doesn’t automatically preclude you from filing, but the court can consider it. You’ll find approved credit counseling programs on the U.S. Trustee Program website.
2. Learn where to file your Chapter 7 bankruptcy case.
Most people file in the federal courthouse closest to their home, but that might not be the case if you lived in more than one place 180 days before filing. File in the district you lived in the longest during that period. Use the Court Finder tool to find federal court websites and to check the jurisdiction maps—jurisdictions are likely divided by zip code, city, or county.
3. Organize your financial documents.
You’ll need to refer to financial documents when filling out the bankruptcy paperwork. You’ll also provide copies of some items to the bankruptcy trustee appointed to your case (a few jurisdictions require debtors to file certain documents with the court). Get a list of the documents you might need in bankruptcy and learn about “521 documents.”
Chapter 7 Bankruptcy Filing Process: Completing the Chapter 7 Bankruptcy Filing
Next, prepare the Chapter 7 bankruptcy filing paperwork. You’ll provide information about your finances on standard bankruptcy forms. Because the average bankruptcy filing is about 50 pages in length, it will take time to put your case together. Plan accordingly. If you must file immediately, don’t worry—you can use the emergency filing procedure. You’ll file fewer forms initially and the remaining forms within two weeks.
1. Start with the Chapter 7 bankruptcy petition.
You’ll start with the Voluntary Petition for Individuals Filing for Bankruptcy form. It tells the court who you are, the bankruptcy chapter you’re filing, and other important information, including the following:
- names used previously, including business names
- home and mailing address
- how long you’ve lived in the court district
- if you’ve filed for bankruptcy within the past eight years
- if a spouse, business partner, or affiliate has a pending or potential filing
- your rent and eviction status
- if you’re a sole proprietor
- if you own hazardous property
- whether you’ve completed credit counseling
- the types of debts you have
- whether you have nonexempt property the trustee will sell for the creditors' benefit
- how many creditors you have, and
- an estimate of your assets and liabilities.
Be sure to use the exact name on your driver’s license or picture I.D. If it differs slightly, the bankruptcy trustee will likely ask you to amend (change) the petition and require you to appear before the trustee a second time. Also, you must sign the petition under penalty of perjury, so accuracy and transparency are crucial.
2. Fill out the Chapter 7 bankruptcy schedules.
Before tackling the forms listed below, put together a list of all of your property (you can group like items together, such as “kitchenware” and “bedding”) and the law that allows you to exempt (protect) the property. You’ll also need billing statements, collection notices, leases, and credit contracts. Finally, you’ll need proof of income (paycheck stubs, proof of unemployment benefits, and any other income documents) and a monthly budget.
- Schedule A/B: Property
- Schedule C: The Property You Claim as Exempt (individuals)
- Schedule D: Creditors Who Hold Claims Secured By Property (individuals)
- Schedule E/F: Creditors Who Have Unsecured Claims (individuals)
- Schedule G: Executory Contracts and Unexpired Leases (individuals)
- Schedule H: Your Codebtors (individuals)
- Schedule I: Your Income (individuals)
- Schedule J: Your Expenses (individuals)
You’ll find the downloadable bankruptcy forms on the U.S. Court website.
3. Finalize the remaining Chapter 7 bankruptcy forms.
Once you get to this point, you'll be able to take a breather because just four forms remain. The first three forms, along with the declaration and summary, are relatively innocuous and simple to complete:
- You’ll provide your Social Security number on Your Statement About Your Social Security Numbers.
- You’ll create a “creditor matrix” (some courts use a different but similar name)—a list containing each creditor’s name and address that's formatted for printing mailing labels. Check with your court for instructions.
- Your mortgagor and car lender will want to know if you intend to keep secured property, such as your home or car. You’ll tell them on the Statement of Intention for Individuals Filing Under Chapter 7.
- Also, prepare the Declaration About an Individual Debtor’s Schedules form and A Summary of Your Assets and Liabilities and Certain Statistical Information (individuals).
The form deserving careful attention is Your Statement of Financial Affairs for Individuals Filing for Bankruptcy (individuals). The trustee will scrutinize your disclosures closely for signs of fraud and transactions that can be unwound.
On it, you’ll provide two full years of earnings (use the figures from your tax returns) and the amount earned in the current year. You'll also provide information about creditor payments, property transfers, bank accounts, lawsuits, gifts, charitable giving, business interests, and more.
Chapter 7 Bankruptcy Filing Process: Filing the Chapter 7 Bankruptcy Paperwork
Once you’ve completed your forms, you’ll be ready to file your packet with the court clerk. Be prepared to pay a $338 filing fee (as of December 2020).
If you can’t afford it, ask the court to waive the fee or to let you pay in four installments. You’ll use either the Application to Have the Chapter 7 Filing Fee Waived or the Application for Individuals to Pay the Filing Fee in Installments.
Due to COVID-19 restrictions, the clerk’s office might not be open for in-person filing. Check your court’s website for mailing and online filing instructions.
Chapter 7 Bankruptcy Filing Process: The Final Steps
After filing, the court will put the automatic stay in place. It will stop most creditors from contacting you or continuing to collect without first obtaining court permission.
The court will also mail a notice appointing a trustee to administer the case and setting the date of the “341 meeting of creditors,” the one appearance all filers must attend. Other deadlines will be included, too. The court uses the notice to inform creditors when they must file objections and proof of claim forms in cases involving assets.
Before the 341 hearing, you’ll provide the trustee with “521 documents” that prove the accuracy of the petition figures. After the 341 meeting, you’ll complete the debtor’s education course and file the certificate with the court. You’ll receive the debt discharge order about two months after the creditors’ meeting.
Don't have much money? Find out who pays in a Chapter 7 bankruptcy. You'll learn more about the Chapter 7 bankruptcy process in Bankruptcy FAQ: After You File.