What is entailed in a Chapter 7 bankruptcy?

People who wish to file for Chapter 7 bankruptcy must qualify, fill out the application and be approved.

When people feel as though they can no longer handle the financial turmoil that they have endured for a long period of time, they may consider filing for Chapter 7 bankruptcy. When used under the right conditions, bankruptcy has the ability to wipe out a good portion of debt and gives the debtor the chance to begin a fresh financial start. Before taking this massive step, however, debtors should understand what filing for bankruptcy in Tennessee entails and how Chapter 7 can affect your credit report for years to come.

Determining eligibility

From March 2015 to March 2016, 833,515 people in the United States filed for bankruptcy, according to U.S. Courts. Approximately 523,394 of those cases were filed for Chapter 7, making it the most popular form of bankruptcy. Before people can file for Chapter 7, however, they must be eligible. Most applicants are required to pass a state specific means test, which means that their annual income must fall below the state median. They must also take a credit counseling course within 180 days prior to filing for bankruptcy.

Applying for Chapter 7

Once the debtor is considered eligible to file, he or she must submit all of the proper documentation supporting the need for bankruptcy. This includes a statement of the debtor's financial responsibilities, current income, tax records, monthly expenses and property. The trustee who is appointed over the case will then look at the completed application and schedule a meeting of creditors. This meeting gives the creditors who are involved in the case the chance to come forward and ask questions regarding the bankruptcy.

Depending on rare circumstances, the trustee may choose to repossess items from the debtor that are considered non-exempt, sell the property and then redistribute the funds to the creditors involved in the case. An experienced bankruptcy attorney can usually foresee when the trustee is likely to seize non-exempt property, that is, items that are not protected under the state's bankruptcy laws.

Starting over

Before obtaining a discharge most debtors must complete a bankruptcy debtor education course, which helps people establish a budget in order to avoid continued financial turmoil. Although the debtor may be discharged from certain debts once the bankruptcy is finalized, some debt cannot be discharged. This includes court-ordered child support expenses, some taxes owed to the federal or state government and/or student loans.

Finding answers to your questions

If you have thought about filing for bankruptcy, you may have questions regarding which type of bankruptcy is best for your particular situation. An attorney in Tennessee may be helpful in answering your questions and explaining your options regarding which form of bankruptcy may be best for you.