Learn about Chapter 7

Chapter 7 bankruptcy is a process provided for under United States federal law. Chapter 7 wipes out most unsecured debt and gives you a fresh start.

Chapter 7 bankruptcy is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities established in the Code.

Eligibility to file Chapter 7 is determined by the means test instituted with the 2005 amendments to the bankruptcy code.

In most consumer cases, all the assets are exempt, and therefore there are no assets to liquidate and there is no dividend to creditors. Chapter 7 is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships.

Some common debts that are wiped out in a Chapter 7 are credit cards, medical bills, and deficiencies on repossessed vehicles. Even taxes older than three years can be discharged in a Chapter 7.

Typcially, the only debts that are not eliminated are student loans, child support, alimony, taxes incurred within the last three years, and restitution.

A benefit to filing bankruptcy is that it puts into effect something called the “automatic stay.” The automatic stay immediately stops your creditors from trying to collect money from you. At that point, creditors cannot legally garnish your wages, empty your bank account, take your car, house or other property.

It is important to meet with an attorney when filing a Chapter 7 because most people who try and file themselves are unaware that some assets, money in the bank, and tax refunds can be taken by the trustee appointed in your case. However, with proper planning, those issues can be avoided.