Chapter 7

Chapter 7

Chapter 7 is commonly known as “fresh start” bankruptcy. It is designed for individuals who lack the ability to pay back their existing debt. In order to qualify for Chapter 7 bankruptcy, a debtor must pass a means test, which examines their income and expenses, and must not have received a discharge in bankruptcy in the last six to eight years.

How Chapter 7 Works

Once an attorney has administered the means test and determined that a client qualifies for Chapter 7, the attorney and client will fill out a series of forms, or schedules. These describe the debtor’s property, their income and expenses, their debts, property owned and disposed of within the previous two years, and property claimed as exempt from liquidation. Prior to filing these schedules, debtors must complete a credit counseling course requirement, which can be done in a phone call or online.

Once the schedules are filed, the case is assigned to a bankruptcy trustee, who will oversee the case and determine if any of the debtor’s property is available to be liquidated for the benefit of creditors. The job of the trustee is to see that your creditors are paid as much as possible toward the debts you owe them.

A date will also be set for the Section 341 meeting, also known as the First Meeting of Creditors. This brief, relatively informal meeting allows the bankruptcy trustee (and any creditors who wish to appear) to examine the debtor. Although all creditors receive notice of the hearing, most creditors choose not to appear.

At the conclusion of the bankruptcy case, the debtor receives a bankruptcy discharge, which wipes out most or all of the debt accrued to the time of the bankruptcy filing. Prior to receiving the discharge, the debtor file proof of completion of a debtor education course, which is separate from the credit counseling requirement.

Advantages of Chapter 7

  • Once a Chapter 7 bankruptcy is filed, an “automatic stay” goes into effect, preventing creditors from contacting the debtor, garnishing wages, or otherwise trying to collect what they are owed.
  • Chapter 7 bankruptcies are completed relatively quickly, in four to six months.
  • Most debts are completely erased. Some exceptions are: certain tax debt, alimony, child support, and student loans.
  • While the trustee has the right to liquidate a debtor’s non-exempt assets in a Chapter 7 case, the reality is that exemptions often protect all of a debtor’s assets.
  • Your income after you file a Chapter 7 bankruptcy is not part of the bankruptcy case, with few exceptions, such as inheritances received within six months after filing.
  • Legal fees for a Chapter 7 bankruptcy are lower than those for a Chapter 13.
  • There are no monthly payments to make or ongoing paperwork in Chapter 7 bankruptcies, in contrast to Chapter 13.

If you would like to learn more about Chapter 7 bankruptcy and other debt resolution options, we invite you to contact our firm.

Attorneys:  Steven L. Rayman

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