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What happens when I file for Chapter 7 bankruptcy?

A previous blog post discussed the eligibility requirements for filing Chapter 7 bankruptcy. Mississippi debtors whose income falls below state median income requirements or who satisfy the means test will be eligible for Chapter 7. Several circumstances will render debtors ineligible for Chapter 7, such as if their debt had been discharged under Chapter 7 within the past eight years, the debtor did not satisfy the credit counseling requirement, or the debtor engaged in fraud.

Debtors who satisfy either the median income requirement or who pass the means test must attend U.S. Trustee Program-approved credit counseling within 180 days before filing and must complete an educational course on debt management. During counseling, debtors will discuss topics such as bankruptcy alternatives and individual budget plans. Once credit counseling is complete, debtors may file for bankruptcy.

When filing for Chapter 7, debtors must provide information regarding their income, debt, expenditures, creditor holdings, sale of property and exempt property. Debtors may keep exempt property such as a homestead, car and personal items under Chapter 7 bankruptcy rules. The bankruptcy court will then issue an automatic stay which will temporarily stop collection activities during the bankruptcy process. The debtor will then be protected from wage garnishment, filing of liens and seizure of property.

A trustee will be appointed to handle the sale of the debtor's non-exempt property. The trustee will schedule a creditors' meeting to determine the distribution of such non-exempt property - debtors may have to relinquish non-exempt items or provide the trustee with its monetary value. A few months later, the bankruptcy court will schedule a discharge hearing at which any unsecured debt is discharged under Chapter 7 and the debtor will have a fresh financial start. However, debtors still must repay some debts such as child support, tax debt, student loans or fraudulently-created debt.

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