WHAT IS CHAPTER 7 BANKRUPTCY?

Chapter 7 of the Bankruptcy Code provides for the “liquidation” or sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. It is also commonly known as the “fresh start” type bankruptcy. In the case of an individual, the debtor is allowed to claim certain property as exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts.

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. However, corporations and partnerships do not receive discharges.

Everyone that files for bankruptcy under Chapter 7 must take a “means test.” The means test is a formula-based screening tool to see if you qualify for Chapter 7 (liquidation) or Chapter 13 (reorganization) bankruptcy.

The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor’s home state. Property that is considered “exempt” is retained by the debtor; conversely, property that is “nonexempt” is subject to sale by the bankruptcy trustee with the proceeds distributed to creditors.

Chapter 7 proceeding starts with filing of the Bankruptcy Petition with required schedules and statements. Individual debtors with primarily consumer debts have additional document filing requirements. Filing a petition under chapter 7 stops most collection actions against the debtor or the debtor’s property, including foreclosure of the real property or repossession or a car or a boat.

The debtor will be required to appear in the Court at least one time for the meeting of creditors conducted by the trustee appointed by the Court. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions.

With secured loans, such as a house, car or boat, you may choose to return that property to the creditor and discharge the underlying debt or to keep the property, “reaffirm” your debt and continue making payments under that secured debt. Most people can keep their house or car, if it is the best option.

A typical Chapter 7 bankruptcy case usually lasts between 3 to 5 months. At the end of the process, the bankruptcy court issues a discharge. A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Some debts cannot be discharged. For example, you cannot discharge debts for:

  • some taxes;
  • child support;
  • alimony;
  • most student loans;
  • court fines and criminal restitution; and
  • personal injury caused by driving drunk or under the influence of drugs,
  • debt for the money or property that debtor received by fraud, and some other debts.

If you have a lot of debts and think that you may be qualified for Chapter 7 or Chapter 13 bankruptcy, begin to solve your problem today by calling Rotstein Law Office at our office number 206-579-8823 or by completing the interactive Contact Form.