Chapter 7

What is a Chapter 7?

Chapter 7, also known as a “straight” or “liquidation” bankruptcy is a method by which a person or business can obtain a FRESH START by eliminating most debt. A DEBTOR who is overwhelmed by debt can look to bankruptcy in order to obtain relief. Once the debtor receives a discharge then the debts (with some exceptions) scheduled in Bankruptcy no longer need to be repaid.

When a petition is filed under Chapter 7 an entity is created called the Bankruptcy Estate. The Bankruptcy Estate consists of everything you own including real estate, personal property and intangible assets. The estate further includes anything you might inherit within a certain time period.

I am Facing a Foreclosure, Repossession, Civil Judgement, Wage Garnishment — How Can a Chapter 7 Help Me?

Once a Bankruptcy is filed foreclosures, repossessions, civil judgments, wage garnishments, etc. are stayed — (meaning that the creditor cannot continue with the action). Note that there are some exceptions.

Who is a Debtor pursuant to the Bankruptcy Code?

The debtor is a U.S. Citizen or Business that has filed for Bankruptcy. A debtor must have resided in the state where the debtor is filing the Bankruptcy for at least 180 days. Generally, if the debtor has not resided in said state for 180 days then the debtor must file in the state where the debtor has resided or has had his or her principal place of business or which has been the location of his or her principal assets for the majority of the last 180 days (see 28 USC 1408).

Can I file a Chapter 7?

Any U.S. Citizen or Business can file Chapter 7 with some limitations. First, if a Debtor has received a discharge under Chapter 7 or Chapter 11 within 8 years before the present case is filed then that Debtor cannot file for Chapter 7. Second, if a Debtor has received a discharge under Chapter 12 or Chapter 13 within 6 years before the present case is filed then that Debtor cannot file for Chapter 7.

To determine if a Debtor qualifies for a Chapter 7 the Court reviews income and ability to pay.

When does a Chapter 7 begin?

A Chapter 7 bankruptcy begins upon the filing a Bankruptcy Petition and with the payment of the filing fees by a Debtor.

How long does a Chapter 7 take?

A typical Chapter 7 can last up to 4 months.

What are the procedures? How does Chapter 7 work?

See procedure timeline.

What is a discharge?

Please see discharge on our bankruptcy terms page.

Are taxes dischargeable?

Some taxes are dischargeable. However there are many exceptions and conditions with respect to taxes.

What is a security interest?

If you have a vehicle or a house it is more than likely that you took out a loan with a bank or other creditor in order to purchase the asset. In order for the creditor to lend you the money to purchase the asset it would have required you to execute documents (e.g. deed of trust) that evidenced its right to take the asset if stop paying. In this instance the creditor is said to have a “security interest” in the collateral.

In Chapter 7, what happens to the assets that I own which are subject to a security interest?

When you file for bankruptcy you have a few choices regarding assets that are secured, those choices include: (1) surrendering the asset to the creditor, (2) redeem the asset by immediately paying the value of the property, or (3) reaffirm the secured debt and continuing to make the payments remaining for the balance of the debt.

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