What is Chapter 7 Bankruptcy?
The most common type of bankruptcy and allows debtors to liquidate non-exempt assets and discharge certain types of unsecured debts in as little as four to six months.
Current bankruptcy laws have made it more difficult for some debtors to file Chapter 7 Bankruptcy and instead require them to repay a portion of their debts through Chapter 13 Bankruptcy.
Chapter 7 Bankruptcy gets your qualifying assets sold by a court-appointed trustee, who will liquidate the assets, and use the proceeds from the sale to repay the creditors in priority order determined by bankruptcy law. Unsecured debts which are part of the bankruptcy are discharged at the completion of the bankruptcy process.
Chapter 7 filing will remain on the debtor's credit report for 7 to 10 years and will lower their credit score, making it more difficult to get credit.
Why Chapter 7?
- Fresh financial start
- Discharges credit card bills, payday loans and more.
- Stops all creditor actions including phone calls, letters, and lawsuits.
- Costs as little as $299
- As little as $750 to hire a bankruptcy lawyer
- Can be completed in as little as 3 to 6 months!
- Keep all of your exempt property
What Debt CAN Be Discharged With Chapter 7
Chapter 7 Bankruptcy can generally eliminate the following types of unsecured debts:
- Credit card debts
- Personal loans for unsecured assets
- Medical, dental and hospital bills
- Negligence claims
- Civil judgments (exceptions exist)
- Repossession deficiencies
- Certain types of tax debts
What Debt Can't Be Discharged With Chapter 7
Certain debts are not discharged in bankruptcy, and for these debtors, filing Chapter 7 Bankruptcy may not resolve their financial issues. A few non dischargeable debts are highlighted below.
- Debts acquired through fraudulent actions
- Student Loans
- Child Support and Spousal Support
- Current tax obligations
Chapter 7 Eligibility
- Debtors cannot file under Chapter 7 or any other chapter if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court, a previous bankruptcy case was considered fraudulent, or the debtor had the case dismissed after a creditor asked the court to lift the automatic stay.
- Debtors cannot file Chapter 7 Bankruptcy within eight years from a prior Chapter 7 Bankruptcy.
- Debtors cannot file Chapter 7 Bankruptcy within six years from a prior Chapter 13 Bankruptcy.
Chapter 7 Requirements
The general requirements to file chapter 7 bankruptcy state that you must:
- Be an individual, a partnership, or a corporation or other business entity.
- Pass the chapter 7 means test.
- Receive credit counseling
within 180 days before the filing (emergency exemptions exist).
- Meet the state's minimum
residency requirements to use the state's bankruptcy exemptions.
- Attend the 341 Creditor meeting
20 to 40 days from the date they file the Chapter 7 Bankruptcy petition.
- Complete a financial management course within 45 days from the date of the 341 Meeting of the Creditors.
What Property Can I Keep?
Both state and federal bankruptcy exemptions generally include exemptions (in varying amounts) for the following:
- Personal property
- Tools of the trade
- Household goods
- Unemployment benefits
- Workers compensation
- Welfare benefits
The Chapter 7 Process, From Start to Finish
Filing for Chapter 7, if handled correctly and with the help of an experienced lawyer, can often take no more than 4 months!
- Find an approved credit counseling course. After the completion of the course the debtor should receive a certificate which is used to complete Exhibit D - Individual Debtor's Statement of Compliance With Credit Counseling Requirement.
- File the Chapter 7 Bankruptcy Petition which includes information about the debtor: their address, type of bankruptcy, joint filer and filing fee option.
- Submit all of the bankruptcy schedules to the appropriate court with filing fees. This must be done within 15 days of filing the Chapter 7 Bankruptcy petition.
Schedules include Schedule A: Real Property, Schedule B: Personal Property, Schedule C: Property Claimed as Exempt, Schedule D: Creditors Holding Secured Claims, Schedule E: Creditors Holding Unsecured Priority Claims, Schedule F: Creditors Holding Unsecured Non-Priority Claims, Schedule G: Executory Contracts and Unexpired Leases, Schedule H: Co-debtors, Schedule I: Current Income of Individual Debtor - This form lists your monthly gross income and information that you are able to file Chapter 7 Bankruptcy, Schedule J: Current Expenditures of Individual Debtor, Statistical Summary of Certain Liabilities and Related Data, Declaration Concerning Debtors and Schedules. Statement of Financial Affairs, Individual Debtor Statement of Intentions, Form 22A Statement of Current Monthly Income and the Means Test Calculation, Notice to Individual Consumer Debtor Under 342(b).
- Creditors are notified by the court that they must suspend their debt collection efforts.
- The trustee is appointed by the court to oversee the bankruptcy case. The trustee will review the debtor's bankruptcy forms and petition and liquidate the nonexempt property and distribute the proceeds to the creditors.
- Evaluate the debtor's secured debts. If you file Chapter 7 Bankruptcy you will have the right to redeem the debt by paying the creditor what it is worth, reaffirm the debt or have the assets repossessed by creditor.
- Attend the 341 Creditor Meeting
- Take the personal financial management class and file Form 23 with the appropriate court. This course must be completed prior to receiving a Chapter 7 Bankruptcy discharge.
- The debts are discharged and the debtor is no longer responsible for repaying debts that were discharged through the bankruptcy. This generally occurs 3 to 6 months after filing the bankruptcy petition.