A Complete Guide to Filing for Chapter 7 Bankruptcy: Cost, Qualifications and How to File in 2019

This bankruptcy filing liquidates assets to pay off debts.

If you’ve found yourself overwhelmed by debt, you might consider filing for bankruptcy to help manage or eliminate your debt altogether. But before you choose to file for bankruptcy, it’s important to understand the process and the potential repercussions.

Individuals who choose to file for bankruptcy can choose Chapter 7 bankruptcy, which is a liquidation of assets, or Chapter 13 bankruptcy, which establishes a payment plan to pay off debts. If you think Chapter 7 might be the best choice for you and your financial situation, keep reading to find out the Chapter 7 bankruptcy definition and what to expect when you file.

Learn More: How to File for Bankruptcy

What Is Chapter 7 Bankruptcy?

In a Chapter 7 bankruptcy, a trustee is assigned to gather and sell your nonexempt assets, and sells these assets to pay off your creditors. Although you are allowed to keep exempt assets — which vary from state to state but could include such assets as home equity — all nonexempt assets are liquidated with Chapter 7 bankruptcy, which means you might lose property if you file.

Cost for Filing Chapter 7 Bankruptcy

Several fees are associated with filing for Chapter 7 bankruptcy:

  • $245 case filing fee
  • $75 miscellaneous administrative fee
  • $15 trustee surcharge

Fees are typically paid to the court clerk at the time of filing, but you can pay in installments with the court’s permission. If you are approved for an installment payment plan, you are limited to four installments, and the final installment must be made within 120 days after filing. However, if you are granted an extension, the last installment can be paid up to 180 days after filing.

If the bankruptcy Chapter 7 cost is not affordable for you, you might still be able to file. Some individual debtors can have their fees waived, but the person’s income level must be less than 150 percent of the poverty level, which is currently $18,735 annually for a single-person family in most states. The income limit varies by household size.

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How to Get Out of Debt: A Step-by-Step Guide

Do I Qualify for Chapter 7 Bankruptcy?

Individual debtors whose current monthly income is below the state median income qualify for Chapter 7 bankruptcy. For debtors whose current monthly income is above the state median, they must pass a “means test” to qualify, otherwise the filing is seen as abusive. The U.S. Court system defines a Chapter 7 bankruptcy filing as abusive “if the debtor’s aggregate current monthly income over five years, net of certain statutorily allowed expenses, is more than (i) $12,850, or (ii) 25 percent of the debtor’s non-priority unsecured debt, as long as that amount is at least $7,700.” However, the debtor can rebut the qualification of their filing as abusive if they can show special circumstances that justify additional expenses or changes to current monthly income. Otherwise, the filing will likely be converted to a Chapter 13 bankruptcy.

How to File for Chapter 7 Bankruptcy

You will need to take several steps to file for Chapter 7 bankruptcy:

1. Get Credit Counseling

You must have received credit counseling from an approved credit counseling agency, either in an individual or group session, 180 days before filing.

Warning: 7 Signs You Need Credit Counseling Now

2. File the Appropriate Paperwork

Make sure you have all the right paperwork ready to present to the bankruptcy court and the trustee assigned to your case. Required documents and information include:

  • Petition for Chapter 7 bankruptcy
  • Schedules of assets and liabilities
  • Schedule of current income and expenditures
  • Statement of financial affairs
  • Schedule of executory contracts and unexpired leases
  • Tax return or transcripts for the most recent tax year, as well as tax returns filed during the case
  • List of all creditors and the amount and nature of their claims
  • Source, amount and frequency of income
  • List of all of property
  • Detailed list of monthly living expenses, including food, clothing, shelter, utilities, taxes, transportation and medication
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If the debt owed is mainly consumer debt, you must also gather the following documents:

  • Certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling
  • Evidence of payment from employers, if any, received 60 days before filing
  • Statement of monthly net income and any anticipated increase in income or expenses after filing
  • Record of any interest in federal or state qualified education or tuition accounts

3. Pay the Required Fees

These include the case filing fee, the miscellaneous administrative fee and a trustee surcharge, as listed above.

Once you’ve completed the steps, your filing is complete. At this point, an automatic stay goes into effect, meaning that creditors can no longer initiate or continue lawsuits, garnish wages or even make telephone calls demanding payments.

Between 21 and 40 days after the petition is filed, the case trustee will present your case to a meeting of creditors, which you will be required to attend to answer questions. Within 10 days, you will find out if you are considered eligible for Chapter 7 bankruptcy.

Pros and Cons of Declaring Bankruptcy Under Chapter 7

The decision to file a Chapter 7 bankruptcy is a serious one, so it’s best to consult with legal counsel before deciding if it’s the right choice for you. If you do decide to move forward with filing, keep in mind that there are benefits for people who are truly struggling with debt, but there are definitely drawbacks as well.

Find Out: Why Americans Are Drowning in Debt

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Pros of Declaring Bankruptcy Under Chapter 7

If you are approved for a Chapter 7 bankruptcy filing, you are released from personal liability for most debts, and creditors who are owed debts are blocked from taking any collection actions against you.

Cons of Declaring Bankruptcy Under Chapter 7

The most obvious drawback of this type of bankruptcy is that you stand to have your nonexempt assets seized and liquidated, so if you are a person with many assets you can lose a lot when you file for Chapter 7. In addition, Chapter 7 bankruptcy does not discharge all debts. You are still liable for debts for alimony and child support, certain taxes and debts for student loans from the government.

If you’re on the fence about making this financial decision, learn five signs it’s time to file for bankruptcy.

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About the Author

Gabrielle Olya

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 

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