Chapter 7 is considered a straight-forward bankruptcy. Under the Bankruptcy Code, Chapter 7 provides for liquidation – which is the sale of your nonexempt property – with the distribution of the proceeds of the sale of your property, going to your creditors.
The information here will help you understand Chapter 7, but it’s advisable that you speak with an attorney about the specifics of your case.
Chapter 7 is a popular option which can be summarized as follows:
If you filed for Chapter 7 within the last 8 years, you can’t obtain a discharge of your debts if you file a Chapter 13. You can reorganize your debts if you are trying to save your home but you can’t obtain a discharge of your debts.
A Chapter 7 bankruptcy is called a liquidation because assets and debts are liquidated – or sold – with the proceeds of those sales being used to pay off remaining creditors you own money to. There are certain exempt assets which are taken out of the liquidation process.
Planning a Chapter 7 involves filing a schedule of exemptions in the hopes of protecting as much of your property or assets as possible from liquidation and the claims of your creditors.
Under the Bankruptcy Code, asset and property exemptions are protected from liquidation because the function of Chapter 7 is to give you a break from your debts and a chance to start over. It does no good if your creditors take the shirt off your back.
Exemption planning is one of the most important aspects of declaring bankruptcy, and it’s at the forefront of filing a chapter 7 bankruptcy petition.
Examples of non-exempt property or assets
Depending on their value, items you may have to liquidate in Chapter 7 are:
Examples of property and assets that are exempt
Items which are exempt from liquidation in Chapter 7 can include:
Chapter 7 includes a wildcard exemption which is a prescribed dollar amount that you can apply to property or assets that you wish to retain and not lose in the liquidation process. The wildcard exemption can be used to cover multiple assets and protect exposed equity as needed.
Even if you have low income, or no income at all, Chapter 7 can be an important option. You will most likely qualify for a Chapter 7 bankruptcy if:
You are also required to take the means test to determining if you qualify for a a discharge in Chapter 7.
The determination as to whether you qualify is based on your income over the past 6 months before you filed. In most cases, if you don’t quality for a Chapter 7, your case can be converted to a Chapter 13 filing.
The typical reasons why creditors can object to your discharge are as follows:
During bankruptcy, you are required to disclose all your assets in your bankruptcy petition. Failure to disclose your assets will expose you to criminal liability.
In a Chapter 7, if it can be proved that you’ve submitted or made false statements under oath, you could face a Denial of Discharge in Bankruptcy, which allows a creditor or another party of interest to object to your discharge in it’s entirety.
Examples of debts that are cancelled in a Chapter 7 discharge include, but are not limited to: medical bills, income taxes, personal loans, credit card debts, and property judgments. Other debts that can be cancelled are car repossession debts, payday loans, wage garnishments, accident claims against you, business debts and utility bills.
Income taxes can be discharged in chapter 7 if you meet the following requirements:
There are certain cases where you can keep your tax refund in chapter 7 and case where you will have to turn it over to the trustee. For more details you can read our FAQ on how do taxes and bankruptcy work.
The moment your information filed received by the Court’s computer, your bankruptcy petition officially starts, and the Court’s Automatic Stay goes into effect. Your petitions can be filed via electronic filing using your computer.
Once your case is filed, and if it proves to be an asset case, your creditors will have 90 days to file a Proof of Claim which is a written statement along with documentation that money is owed to them. Typically, the government will have 180 days to file a Proof of Claim if funds are available.
The Automatic Stay prevents any creditor from calling you, writing to you, continuing with a lawsuit or foreclosure, attaching your property or wages, or using any means to collect on a debt. All correspondence from creditors to you, must go through your bankruptcy attorney first.
When your case is filed with the Court, a notice is generated. This notice is called the 341 Notice because under Section 341 of the Bankruptcy Coded it is entitled, Meeting of Creditors and Security Holders.
Under this section of the Code, there has to be a public hearing before a Court appointed Trustee, where creditors will have the opportunity to ask you questions about your bankruptcy petition.
Below is a summary of the links found on this page, or other links related to Chapter 7 in general.
You can compare the pros and cons of bankruptcy, debt settlement and debt management, on our options comparison chart for an overview of your options.