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Chapter 7 Bankruptcy Step by Step

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By: Paul Meyerson
on 26th Mar,2013

Chapter 7 bankruptcy is the filing of choice for people who want to wipe out their debts and get a fresh start in handling their finances.
Chapter 7 Bankruptcy Step by Step

Chapter 7 bankruptcy is the filing of choice for people who want to wipe out their debts and get a fresh start in handling their finances. This particular bankruptcy is sometimes referred to as the "total liquidation" bankruptcy because many of the debtors' assets are sold by the bankruptcy trustee to pay off the outstanding debts. Prior to filing for bankruptcy, all debtors must receive court-approved credit counseling.

Who Can File for Chapter 7:

People who don't have enough disposable income to pay off their debts will be allowed to file a Chapter 7 bankruptcy. Disposable income is the amount of money left over after paying monthly living expenses. The formula for calculating disposable income is called the "means test" and is designed to prevent filers with higher incomes from filing Chapter 7 bankruptcy.

Chapter 7 Exemptions:

In a Chapter 7 Milwaukee bankruptcy, there are certain exemptions that filers can claim. A portion of the debtors' furniture, personal possessions and home is exempt from the bankruptcy. In some scenarios, the filers may stay in their home.

For instance, Wisconsin Chapter 7 homeowners are allowed $75,000 of exempted equity in their home. This is called a "homestead" exemption. If the debtors' home is worth $100,000 and has a mortgage balance of $75,000, the home's equity equals $25,000. This equity is less than the $75,000 allowed by the bankruptcy court's homestead exemption, which makes this equity exempt from liquidation in the bankruptcy. The debtors can stay in their home. In many instances, a mortgage lender will re-negotiate the home loan and permit the debtors to make payments at the new monthly payment amount and, thereby, stay in their home.

Automatic Stay:

Once the bankruptcy is filed, an automatic stay is placed on all of the debtors' bills. The bankruptcy court now has control over the debtors' financial affairs. Creditors are forbidden from contacting the debtors' during the automatic stay period.

Meeting of Creditors:

At this meeting, the debtors appear before the bankruptcy trustee. Secured creditors may approach the debtors after this meeting to renegotiate the secured debts. This is called "reaffirmation." The bankruptcy trustee must approve all reaffirmation agreements. In some instances, the debtors may choose to relinquish the secured property which, in turn, eliminates that particular debt.

Chapter 7 Bankruptcy Discharge:

Discharge of the debts marks the end of the bankruptcy process. The debtors will receive a Notice of Discharge and will not be permitted to file Chapter 7 bankruptcy again for at least eight years. Even though the bankruptcy remains on the filers' credit report for 10 years, there are lenders who will eventually extend credit.

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