Chapter 7 Bankruptcy
Under Chapter 7 bankruptcy you can discharge debt, such as credit cards, personal loans, and medical bills with certain exceptions. In most chapter 7 cases, you are able to keep all your property if it is fully encumbered by liens or is “exempt.” The purpose of chapter 7 is to provide the debtor a “fresh start.”
A chapter 7 bankruptcy case is started with the filing of a petition and schedules with the Bankruptcy Court. The filing of a bankruptcy petition provides an “order for relief” under chapter 7. Married persons may file jointly with their spouse.
Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy
A person’s complete financial and legal situation needs to be evaluated carefully in order to make the correct decision of whether chapter 7 or chapter 13 is best for them. Filing under chapter 7 when it is not appropriate, can lead to unfortunate consequences.
Chapter 7 bankruptcy would often be a good choice if all property is “exempt” and household income is below median. Generally, chapter 7 would not be considered if one would face the liquidation of significant assets by the chapter 7 trustee.
Timetable Chapter 7 Bankruptcy
Chapter 7 Case – begins with the filing of a petition and schedules with the Bankruptcy Court
“Creditors’ Meeting” – held about six weeks after the chapter 7 case is filed
Discharge Order – issued about four months from the date the chapter 7 case is filed in most instances
Discharge of Debt in Chapter 7 Bankruptcy
All debt is discharged except certain “non-dischargeable” debt or if discharge is denied
Non-Dischargeable debt – generally includes some student loans, child support, alimony and some taxes
Eligibility for Chapter 7
Individuals, partnerships, corporations, and other business entities are eligible to file for chapter 7 bankruptcy relief. With certain exceptions, an individual is required to receive a certificate of completion of credit counseling prior to filing for chapter 7 bankruptcy. This credit counseling may be done over the internet from an approved credit counseling agency.
Chapter 7 Trustee
Upon the filing of a Chapter 7 Bankruptcy case, the U.S. Trustee appoints a Chapter 7 Trustee to administer the case and liquidate any non-exempt assets. A Chapter 7 debtor is required to cooperate with the Chapter 7 Trustee and to provide any requested asset and financial information and records. Assets that are “exempt” are not subject to administration and liquidation by the Chapter 7 Trustee.
The creditors’ meeting or “341 meeting” is held about 3 to 5 weeks after a Chapter 7 case is filed. The Chapter 7 Trustee presides over the creditors’ meeting. In most personal bankruptcy cases, no creditors attend. During the creditors’ meeting, the Chapter 7 Trustee and any creditors that attend may ask the debtor questions regarding his financial affairs and property. The Bankruptcy judge does not attend the creditors’ meeting.
Discharge of Debt
Unless a creditor or party objects, a Chapter 7 debtor is issued his discharge about four months after the case is filed. Subject to certain exceptions, a discharge releases the debtor from personal liability from most pre-bankruptcy debt and enjoins the creditors from attempting to pursue collection actions against the debtor. Certain types of debt are not dischargeable in bankruptcy, including debts for alimony, child support, certain students loan, and certain taxes. In addition, the discharge of a particular debt or the overall discharge may be denied under certain grounds.