Chapter 7 Bankruptcy is generally what most people think about when the topic of bankruptcy is brought up. People think that Chapter 7 Bankruptcy is the one that “wipes everything out” but people who file it “lose everything”.
The concept of liquidation is quite simple. Nonexempt assets are sold, and the money from the sale goes to creditors. In a Chapter 7, the Trustee liquidates, or sells off all property that is non-exempt according to the provisions of the bankruptcy code. To learn about protecting your assets in bankruptcy click here.
A chapter 7 bankruptcy is significantly shorter than a chapter 13 bankruptcy and does not involve the filing of a plan of repayment as in chapter 13. the bankruptcy code allows debtors to keep certain exempt assets or property, while the trustee will liquidate the debtor’s remaining assets. debtors who file under chapter 7 need to be aware that filing a petition under chapter 7 may result in the loss of property.
chapter 7 bankruptcy eligibility
Generally speaking, most people qualify for a Chapter 7 bankruptcy. One of the biggest hurdles is the Means Test, which is based on a debtor’s income and is intended to determine whether a debtor has the means, or ability to pay back other creditors in a Chapter 13. If a debtor’s income exceeds the means test, the debtor is not automatically disqualified under Chapter 7 Bankruptcy; however, additional steps will need to be taken to determine eligibility.
A debtor filing Chapter 7 Bankruptcy may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test described above 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. A debtor must also receive credit counseling from an approved credit counseling agency within the prior 6 months before filing bankruptcy.
discharge debts in chapter 7 bankruptcy
Generally speaking, more than 99 percent of debtors in a Chapter 7 receive a discharge. A discharge permanently releases a debtors obligation to pay or liability for most debts. A discharge also prevents the creditors owed those debts from taking any collection actions against the debtor. A Chapter 7 discharge is subject to many exceptions, so debtors should consult with a bankruptcy lawyer before filing to discuss the scope of the discharge. In most cases, unless a creditor or party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr. P. 4004(c).
secured creditors in chapter 7
A secured creditor who has a property perfected lien against the property is entitled to repossess the property unless the debtor signs a reaffirmation agreement. Generally speaking, a debtor who files Chapter 7 will indicate in the bankruptcy petition whether the property will be surrendered, reaffirmed or redeemed.
SHOULD YOU FILE CHAPTER 7 or CHAPTER 13? Click here to learn which one may be right for you.
To understand the difference between secured vs unsecured debt and why it matters, click here.
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