Chapter 7 Bankruptcy
Chapter 7 Bankruptcy explained.2 min read
Filing for bankruptcy can be a confusing process and many who are contemplating bankruptcy do not know about the differences regarding which type of bankruptcy they should be filing for.
What is Chapter 7?
Chapter 7 is the most common type of bankruptcy chapter filed in the U.S. Chapter 7 is also known as “liquidation bankruptcy”, that has to do with the selling of a debtor’s non-exempt assets by a trustee which will hopefully erase all debts that can be expunged. This is different from Chapter 13 bankruptcy, which just reorganizes debt into a payment plan.
In order to be eligible to file for Chapter 7, a debtor must meet certain income requirements. The debtor/filer’s income must fall below or be equal to the median income in the filer’s state. If it does, the debtor may file for Chapter 7. If it does not, the filer must take a “means test” which determines whether the debtor has enough income to pay off the creditors. If it is determined that the debtor can do so, he will not be eligible for Chapter 7 and instead could file for Chapter 13.
What happens after you are found eligible for Chapter 7?
If you are eligible for Chapter 7, after you file there will be a Meeting of Creditors. During this meeting, the trustee will ask the debtor a series of questions having to do with his financial affairs and whether all the information in the bankruptcy documents is true and correct. It is possible that during this meeting, a creditor show up and ask a debtor about his finances.
If you are the owner of any non-exempt property, the trustee can sell or seize the property. Not including any federal or state exemptions, any assets that a trustee can recover will be paid to creditors.
The trustee or any creditor may object to the debtor’s discharge within 60 days after the first Meeting of the Creditors. If no such complaint arises, the debtor may be discharged and creditors will not be allowed to collect any debt of the debtor’s that arose before the bankruptcy filing. But remember, not all debts are dischargeable - including student loans, child support, spousal support, or certain taxes.
If you think you will need to file for bankruptcy, you can find a qualified bankruptcy attorney right here on UpCounsel.