Chapter 7 Bankruptcy
Chapter 7 bankruptcy protection is designed to eliminate most of the unsecured debts of an individual or business. Unsecured debt is an obligation that does not have specific property as collateral, such as a house or a car. The process is often referred to as a “liquidation bankruptcy” because the property and/or assets of the debtor are sold in order to pay off as much of the debt as possible. Any debt that remains is then eliminated or discharged. If you are unable to pay your debts and need a fresh start, our experienced bankruptcy attorneys can help you explore your options.
Who is eligible for Chapter 7 bankruptcy?
In order to be eligible to file a Chapter 7 bankruptcy, your income must be lower than the median income in your state. If you earn more than that amount, you must pass a means test and demonstrate that you do not have enough disposable income to pay your debts.
Who is ineligible for Chapter 7 Bankruptcy?
You cannot file for Chapter 7 bankruptcy under the following circumstances:
- A previous debt was discharged within the past eight years under Chapter 7
- A previous debt was discharged within the past six years under Chapter 13
- You attempted to defraud creditors or the bankruptcy court
- You failed to attend credit counseling
Debts That May Be Eliminated
In a Chapter 7 bankruptcy, debt that is eliminated includes:
- Credit card debts
- Medical bills
- Lawsuit debts/civil judgments (including personal injury)
- Personal loans
In some cases, this form of bankruptcy may eliminate tax debt (for a tax period that is at least 3 years old), as well as penalties and interest on other tax debt. Other debts, however, such as student loans, spousal maintenance (alimony) and child support, and criminal fines cannot be discharged.
Some types of property are protected, or exempt, from being sold to pay off debts including residential real estate, automobiles and certain personal property such as furniture and clothing, depending on the state in which you live. Property that is not exempt includes cash, bank accounts, stocks and bonds, and vacation homes.
How to File for Chapter 7 Bankruptcy
Prior to filing a Chapter 7 bankruptcy, you must attend credit counseling with an agency approved by a bankruptcy trustee. Once the course is completed, you can file for bankruptcy in a local bankruptcy court. Information about your income, debt, expenditures, secured and unsecured debt, the sale of prior property, and a list of exempt property must be included in the petition.
As soon as your bankruptcy petition is filed, a court order, known as an automatic stay, immediately goes into effect that stops creditors from debt collection activities. Creditors are also barred from proceeding with repossessions, foreclosures, garnishments, and filing lawsuits unless permission is obtained from the bankruptcy court. The automatic stay remains in effect until the bankruptcy is discharged.
After the petition is filed, a trustee will be appointed and you will be required to attend a meeting of creditors referred to as a “341 meeting.” Creditors are entitled to appear and ask questions regarding your financial situation and property. In most cases, however, creditors do not attend. The trustee will preside at this meeting and question you about the petition.
Filing for a Chapter 7 bankruptcy requires serious consideration since you may lose some of your property and your credit rating will be damaged. This form of bankruptcy, however, may provide you with a chance to start over.
If you are facing debts that cannot be paid off, our experienced attorneys can help you navigate the process. Call our office today for a free evaluation of your case.