How does Chapter 7 bankruptcy work?

Arizona residents who are struggling to make ends meet may be curious about how bankruptcy works. When debts mount beyond a person's ability to pay, bankruptcy laws provide some relief by allowing the consumer to discharge some debts and start over with a clean slate. Filing for bankruptcy automatically prohibits most creditors from continuing collection efforts. The bankruptcy clerk will give notice of the filing to listed creditors.

The way to begin a Chapter 7 bankruptcy is to file a petition with the bankruptcy court and pay the filing and other fees. A person who cannot afford the filing fees may request to make payments in up to four installments made over the course of up to 120 days. Consumers who cannot afford to pay the fees, even in installments, may ask the judge to waive the requirement.

In addition to the bankruptcy petition, several other documents are filed. These include a schedule of assets and liabilities, a statement of financial affairs, a list of any unexecuted contracts and leases, the person's most recent tax return, and a list of income and expenses. Individuals that primarily are burdened with consumer debts must also file a certificate of credit counseling showing that the person has completed a court-approved program and a copy of any repayment plans created as a result of the counseling. After the petition is filed, a meeting of creditors is held, which the debtor is required to attend.

Bankruptcy can be a complicated process. An attorney may be able to help smooth the way by assisting with the required documents and providing guidance at the creditor meeting. If creditors attempt to collect debts after the bankruptcy is filed, an attorney may be able to help intervene and stop collection.

Source: Findlaw, "Chapter 7: How it Works", September 30, 2014

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