February 18, 2020

Chapter 7 Bankruptcy

Chapter 7 BankruptcyA chapter 7 bankruptcy, commonly known as a “liquidation bankruptcy,” discharges a debtor from most debts, and provides for an orderly distribution of non-exempt assets (liquidated into cash) to pay a dividend to creditors.  Debtors, however, have the right to retain property based on exemptions, or laws that protect property.  In most cases, debtors who file a chapter 7 bankruptcy will not have to reliquish or lose any property due to the protection provided by these exemptions.

Certain debts are not dischargeable in a chapter 7 bankruptcy, and include, among other debts, domestic support obligations and certain tax liabilities (although some tax liability is dischargeable in bankruptcy).

Most unsecured and secured debts will be discharged in a chapter 7 bankruptcy, including medical debt, credit card debt, auto loan deficiencies, and other consumer debts and business debts.

A hallmark of a chapter 7 bankruptcy is the “Means Test.” The Means Test factors in household size and income to determine a debtor’s eligibility for a chapter 7 bankruptcy.  If a debtor has too much income, in many cases, that debtor may be required to file a chapter 13 bankruptcy.

The process for a chapter 7 bankrupcy generally lasts 3 months and includes a hearing about a month after filing before a trustee.

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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