Is Chapter 7 Bankruptcy Right for You?

  • Many people don’t want to file for bankruptcy

    But if you’ve been sued and there is a court judgment against you, it can get hard.

    Your wages can be taken (garnished) or your bank account can be taken to pay bills

    That makes it hard to pay for rent, food, and other needs.

    Bankruptcy might help if:

    • You are getting a lot of calls or letters from creditors.

    • You have a lot of debt and can’t pay it back.

    • You want a fresh start.

    • You may not need a bankruptcy, even if you have a lot of debt, but are “collection proof.” Read the section on being collection proof on this website.

  • A judgment from a lawsuit stays on your credit for 7 years.

    A bankruptcy stays on your credit for 10 years.

    But bankruptcy might help free up your money now.

    That can help you start rebuilding your credit sooner.

  • 1. Chapter 7

    This is the most common kind for people with low income.

    It clears (discharges) most debts.

    It works best if you:

    • Don’t own much property

    • Don’t have extra money to pay bills

    • Some debts can’t be erased in bankruptcy.

    • usually works better for Low-Income People who don’t have much income to pay debts, or high-value property they need to keep.

    • You can file for Chapter 7 three times in your life.

    • You must wait 8 years between each time you file Chapter 7 bankruptcy.

    2. Chapter 13

    This is a 3-to-5-year payment plan.

    You make smaller payments on your debt.

    You need steady income to qualify.

    It’s often used if:

    •  You own a home

    •  You have more property than you can protect in Chapter 7

  • Do not file if you don’t have health insurance.

    Wait to file until all medical treatment is done.

    Also wait if you are still pregnant or just had a baby.

    New bills after your bankruptcy will not be included.

    You won’t be able to file again for 8 years.

    You don’t want to get stuck with new debt right after you file.

  • Don’t use credit cards or take out loans in the 90 days before you file.

    Don’t give away large amounts of money to friends or family in the 2 years before filing.

    Don’t pay one creditor more than $600 in the 3 months before filing.

    These things can cause problems in court.

  • Chapter 7 works best if:

    • You are single and have less than $22,750 in home equity OR

    • You are married and both spouses file bankruptcy, and there is less than $45,500 in home equity OR

    • If both names are on the deed to the house, but only one spouse files for bankruptcy.

  • Some debts cannot be erased in Chapter 7. These include:

    • Child support

    • Alimony

    • Some taxes

    • Criminal fines or judgments

    • Debts from fraud or harm you caused on purpose

    • Some student loans.

  • You must make less than the median income in Indiana.

    If you make more, you may have to pay on your debts through Chapter 13.

    Many bankruptcy lawyers offer free consultations.

    You can file by yourself, but it’s hard and there is a lot of paperwork.

    A lawyer can help you avoid mistakes and protect more of your property.

    When you file a bankruptcy case, the court puts an automatic 'stay' on your debts.

    This is a legal order that stops all efforts to collect from you.

    That means creditors must stop wage garnishments, repossessions, bank freezes, lawsuits, and even foreclosure.

The Process of a Chapter 7 Bankruptcy

  • Filing bankruptcy means showing the court all of your money information.

    That means you must collect a lot of documents.

    You must give things like bank statements and paystubs before and during your case.

    The court will look at:

    • What you owe

    • What you own

    • What you earn

  • a. Take Your First Class

    • You must take a class about debt and money.

    • You can take it online or by phone.

    • You must take this class within 6 months before you file your case.

    b. Gather Your Information

    • You and your lawyer (if you have one) fill out forms.

    • These forms list all your:

      • Debts

      • Income

      • Property

      • Monthly expenses

    c. Pay the Filing Fee

    • The court fee is $338.

    • You may not have to pay it if your income is under 150% of the poverty level.

    • Or you might be allowed to pay in parts.

    d. File Your Case

    • You file your bankruptcy papers in federal court.

    • This starts a rule called an “automatic stay.”

    • That means creditors must stop trying to collect money from you.

    • They must stop:

      • Wage garnishments

      • Lawsuits

      • Foreclosure

      • Bank freezes

    e. A Trustee Is Appointed

    • A trustee is a lawyer picked by the court.

    • The trustee checks your forms and looks for any property that could be sold to pay your debts.

    f. Go to the Creditor’s Meeting

    • This meeting happens about 30 days after you file.

    • The trustee will ask you questions.

    • You must bring updated paystubs and bank statements.

    g. Take Your Second Class

    • After the meeting, you must take a second class.

    • This one is about how to manage your money.

    • It’s called the “pre-discharge class.”

    • You must finish this class to get your debts cleared.

    h. Reaffirmation Agreements

    • These are agreements to keep paying for your house or car.

    • You make these with your lender.

    • You file them with the court.

    • This lets you keep the house or car, even after the bankruptcy.

    i. Discharge of Debts

    • If everything is okay, the court will discharge (erase) your debts.

    • This happens about 60 days after the creditor’s meeting.

    • Caution: If you don’t take the second class, your case may close with no discharge.

    j. The Case Closes

    • Your case will be closed two to four months after the creditors’ meeting:

    • If you miss the second class, your case may close with no help given.

    k. Delays Can Happen

    l. Watch Out for Non-Exempt Property

    • Some things can be taken to pay your debts.

    • One example is a tax refund.

    • If you get a large tax refund every year, the trustee might keep the case open to take part of your refund next year.

  • The trustee is a lawyer who works for the court.

    They check all of your forms and documents.

    They make sure:

    • You told the truth

    • You signed your papers

    • You gave all required information

    At the creditor’s meeting, the trustee may:

    • Ask for more documents

    • Ask about your paystubs and bank statements

    • Ask if you read and signed your bankruptcy forms

    • Ask about your tax refunds or money owed to you

    • Ask if you want to keep paying for your house or car

  • This meeting is usually held online.

    It takes about 10–15 minutes.

    The trustee will ask you questions.

    Creditors can join the meeting, but they usually don’t.

    The trustee may ask:

    • Did you read and sign your bankruptcy forms?

    • Was all the information true?

    • Does anyone owe you money?

    • How big are your tax refunds?

    • Will you keep paying for your house or car?

    If the trustee needs more papers, they will tell you.

Am I Collection Proof?

  • It means a creditor can’t take your income or property to pay a debt.

    This is because your income and belongings are protected by law.

  • Child support, taxes, and SSI/SSDI overpayments, some other government debts, follow special rules.

    You should talk to a lawyer to understand what rules apply to you.

  • If you took a loan to buy something big (like a house or car), that loan is “secured.”

    If you don’t pay, the lender can take the property back that you bought with the loan. But if you’re collection proof, you might not have to pay anything you owe after the property has been repossessed or foreclosed upon.

  • You Work But Don’t Make Much Money

    • You make $217.50 a week or less after taxes (30 hours at $7.25/hour)

    • You have less than $450 in your bank or online accounts

    • You own less than $12,000 worth of personal property (like a car, furniture, collections, bonds, stocks, etc.)

    OR

    You Only Get Government Benefits

    This includes: Social Security, SSI, TANF, Veterans’ Benefits, Railroad Retirement, Unemployment, Worker’s Compensation

    • You don’t have more than two months' worth of these benefits in the bank

    • You have less than $12,100 in personal property (including car value, furniture, collections, bonds, stocks, etc.)

  • It may change. If your income goes up or your job changes, you might no longer be collection proof.

    If you start getting a paycheck instead of benefits, the rules change.

    It’s smart to talk to a lawyer at indianalegalhelp.org or indiana.freelegalanswers.org

  • It may change. If your income goes up or your job changes, you might no longer be collection proof.

    If you start getting a paycheck instead of benefits, the rules change.

    It’s smart to talk to a lawyer at indianalegalhelp.org or indiana.freelegalanswers.org

  • These hearings happen after a court says you owe money.

    The creditor wants the court to ask how you’ll pay.

    Important Warnings:

    Always go to these hearings.

    If a sheriff or someone in person gives you notice, you MUST attend.

    If you miss a hearing after in-person notice, the judge can issue an arrest warrant (called a “writ of attachment”).

  • You must file a Motion to Continue (ask to move the court date).

    Use this form: https://indianalegalhelp.org/commonly-used-forms

    Don’t just call the court. You need to write it down and send a copy to the creditor.

  • Writs of attachment (arrest warrants) last for 6 months.

    Any police can arrest you if there is a warrant, even during a traffic stop.

    If you see a warrant on mycase.in.gov:

    Write the court

    Say why you missed court

    Ask for a new hearing date

    Ask the court to cancel the warrant

    Send a copy to the creditor

  • Use mycase.in.gov to check what’s happening.

    It helps you stay up to date and avoid problems.

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