Creditors struggling with debt may have to consider filing for bankruptcy. A Chapter 7 bankruptcy allows the discharge of a range of debt and can provide a fresh start. The time for filing is when a creditor is struggling with debt and tried to negotiate with creditors, work with a credit counselor or consolidate debt.
Chapter 7 can put a temporary hold on some debt. After the bankruptcy petition is filed, creditors may be stopped from taking most collection actions for a temporary period. However, some assets may be ultimately lost. Pensions, retirement accounts and some home equity are usually exempt.
This process usually takes 80 to 100 days from filing until the discharge of the debts. Debtors should compete bankruptcy counseling with an approved agency within 180 days before their filing. They also need to pass a means test which determines whether their income exceeds a specified amount and they are eligible for filing based on Pennsylvania's income standards.
The process also requires filing a petition with a bankruptcy court and paying court fees which can be hundreds of dollars. Information concerning income and expenses and recent tax returns must also be submitted to the court.
Debtors also need to attend a meeting of creditors with the bankruptcy trustee assigned to them and any creditors who choose to attend. A debtor will also answer questions, under oath, concerning their debt, property and financial situation.
Next, debtors must complete a financial management course offered by an approved agency. The course should be completed, and a certificate of completion submitted within 60 days from the first date scheduled for the creditors' meeting.
Finally, the discharge is received. This permanently prevents creditors from collecting any specific debts discharged in the bankruptcy. Not all debts are dischargeable, however. Also, Chapter 7 does not discharge obligations such as child support, student loans or tax debt.
Debtors should also consider Chapter 7's potential disadvantages. Liens may be placed on property or sold to pay creditors. This bankruptcy also stays on credit reports for up to 10 years and hurt the ability to qualify for new loans.
An attorney can provide options and advice on dealing with debt. Legal representation may help protect rights during this process.