Chapter 7 Bankruptcy is the simplest and easily understood type of bankruptcy. The concept of Chapter 7 is straightforward. Debts that are dischargeable get wiped out. Non-dischargeable debts stick around. The debtor keeps assets that are protected (exempt). Nonexempt assets are liquidated. The money from the liquidation sale goes to creditors and Trustee.
To learn about protecting your assets in bankruptcy click here.
Chapter 7 Bankruptcy is a form of bankruptcy in which a Trustee liquidates or sells assets that are not exempt. Liquidation generally occurs at auction. The Trustee keeps a portion for themselves and the rest goes to creditors. The bankruptcy code ranks creditors by importance, as a result, some get more money than others.
For information on exempt property click HERE.
For information on non-exempt property click HERE.
The Means Test determines whether you qualify for a Ch 7 Bankruptcy. The purpose of the means test is twofold: First, it prevents debtors with large disposable monthly incomes from filing Ch 7 and wiping out all of their debt. Second, it pushes them towards a Chapter 13 Bankruptcy where they could pay back some, if not all of their debts. The Means Test takes a snapshot of your income for the last 6 months, then compares it to the general population within the same general location – usually determined by zip code.
For information on the Means Test and if you qualify for Ch 7 Bankruptcy, click HERE.
You must pass the Means Test to qualify for Chapter 7 bankruptcy. The Means Test is based on your income. If you make too much you may not qualify for chapter 7. Debtors will need to complete the second part of the Means Test to determine eligibility. The Department of Justice posts the most up to date Mean Test numbers on their website here.
For a brief overview on the three basic types of debts, click HERE.
A discharge permanently wipes out a debt. Some debts cannot be wiped out in bankruptcy – to see which ones click here. A Chapter 7 discharge is subject to many exceptions, so debtors should consult with a Chapter 7 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).
For an overview on which type of bankruptcy may be right for you, click HERE. There is no one size fits all answer to this question, so it is best to speak with a Chapter 7 bankruptcy attorney about your situation to determine which type of bankruptcy is a better fit.
Chapter 7 has some key differences from a Chapter 13. First, a chapter 7 bankruptcy is less complex than a chapter 13 bankruptcy. Second, debtors receive a discharge significantly quicker. Third, chapter 7 is less flexible than Chapter 13 and may not accomplish what you want. For instance, if you are behind on your car or house payment – Chapter 7 may not be right for you. In addition, if you have non-exempt assets, Chapter 13 may be a better fit.
Car loans and mortgages are the most common types of secured creditors. You have three basic choices on how to hand them when you file Chapter 7: Surrender, Reaffirm or Redeem. Surrender is straightforward – you give the collateral back to the creditor in exchange for wiping out the debt. Reaffirm is to sign a new loan agreement. Redeem is to purchase the collateral in a lump sum.
Chapter 7 debtors must fill out a form called the Statement of Intention for Individuals Filing Under Chapter 7. This tells all parties involved whether you intend to keep or surrender property secured by a lien. A secured creditor who has a property perfected lien against the property may repossess the property unless the debtor signs a reaffirmation agreement.
Ch 7 Bankruptcy fees must be paid prior to filing. The attorney fees vary in price depending on the complexity of the case. Click HERE for ideas on how to get money together to file a case.