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To qualify for relief under Chapter 7  bankruptcy, the debtor may be an individual. Subject to the means test described for individual debtors, relief is available under Chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. In addition, no individual may be a debtor under Chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual Chapter 7 bankruptcy case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. A bankruptcy discharge does not extinguish a lien on property.

Debtors should be aware that there are several alternatives to Chapter 7 bankruptcy relief. For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under Chapter 11 of the Bankruptcy Code. Individual debtors who have regular income may seek an adjustment of debts under Chapter 13 as well. A particular advantage of Chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to "catch up" past due payments through a payment plan. 

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives. In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities

(2) a schedule of current income and expenditures

(3) a statement of financial affairs

(4) a schedule of executory contracts and unexpired leases. 

Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling.

The courts must charge a case filing fee, a miscellaneous administrative fee, and a trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With the court's permission, however, individual debtors may pay in installments. If the debtor's income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the Chapter 7 fees even in installments, the court may waive the requirement that the fees be paid.

Chapter 13 bankruptcy is like Chapter 11, which applies to businesses. In both cases, the petitioner submits a reorganization plan that safeguards assets against repossession or foreclosure and typically requests forgiveness of other debts. They both differ from the more extreme Chapter 7 filing, which liquidates all assets except those specifically protected.

To be eligible to file for Chapter 13 bankruptcy, an individual must have no more than $394,725 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans. These figures adjust periodically to reflect changes in the consumer price index.

Chapter 13 allows you to stop an effort to foreclose on your home. Filing a Chapter 13 petition suspends any current foreclosure proceedings and payment of any other debts owed. This buys time while the court considers the plan, but it does not eliminate the debt.

Chapter 7 bankruptcy forces you to liquidate a great many assets to repay creditors. But the process can be concluded relatively quickly, and any wages and property you acquire after the bankruptcy filing, except inheritances, aren’t subject to distribution to your creditors. Typically, the entire process is completed within six months.

Seeking Chapter 13 protection allows you to keep all your property. It simply extends the amount of time you have to repay what you owe after the bankruptcy court issues its ruling. It is possible to file a Chapter 13 bankruptcy after a Chapter 7 is completed, allowing you to seek a reduction in whatever debts remain from a Chapter 7 discharge.

Chapter 13 also protects your loan cosigners against collection efforts if the bankruptcy settlement obligates you to repay the debt yourself.

The two main things the trustee and the judge will consider in deciding whether to accept your plan are:

• whether the creditors are being treated fairly
• whether each creditor will receive at least as much as if you had gone with the traditional Chapter 7 bankruptcy

In a Chapter 13 case, the creditors' meeting is usually concerned with trying to reach a plan that will be acceptable to the creditors. You may spend some time negotiating with creditors as they try to get you to change your plan so they get more money or get it faster.

The creditors don’t need to agree with your plan, but if they do, it will be more easily accepted by the trustee and the judge. Even if the creditors object to your plan, it can still be approved as long as it is fair and as long as each creditor gets at least as much as if you had filed under Chapter 7.

Once the court approves a repayment plan, it is up to the debtor to make the budget plan work. Failure to make agreed-upon payments will bring the matter back to court for further review, which could include selling the debtor’s property to pay debts.

Bankruptcy may give debtors a breather from creditors, but there is a penalty to be paid on their credit reports. A Chapter 13 bankruptcy will be listed on the report for seven years. Debtors in this situation may find it difficult to get additional credit for years.

Chapter 13 bankruptcy can be a useful financial tool for people with serious debts who worry about losing their homes to bankruptcy. Anyone considering this course should consult a Foster Law Firm immediately  .