What is Chapter 7 Bankruptcy?

Chapter 7 is a form of bankruptcy available to individuals and businesses who need a fresh start. The individuals and businesses are referred to as “debtors” during the bankruptcy proceedings, and Chapter 7 debtors will have their unsecured debts discharged by the Bankruptcy Court at the conclusion of the bankruptcy.

Chapter 7 is a liquidation bankruptcy where the debtor’s assets are taken by the bankruptcy trustee and sold to repay creditors. In a Chapter 7 business bankruptcy, all of the debtor’s assets will be sold to pay creditors and the company will cease operations. However, individuals filing for Chapter 7 bankruptcy are allowed to protect certain property, known as exempt property, from being sold by the trustee.

Who Can File for Chapter 7 Bankruptcy?

Debtors are generally eligible to file for Chapter 7 bankruptcy if they have not filed a Chapter 7 bankruptcy petition during the past eight years and if their income falls below a certain income threshold. That threshold is usually calculated based on the size of the household and the state where the debtor resides. In limited circumstances, a debtor is allowed to file for Chapter 7 bankruptcy when his or her income exceeds that threshold. Debtors with incomes exceeding the Chapter 7 threshold may still be eligible to file for a Chapter 13 reorganization bankruptcy.

How do you File for Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy case begins when the debtor files a petition with the Bankruptcy Court serving the area where the debtor resides. The debtor must also submit the following with the court:

• Schedules of assets and liabilities;
• A schedule showing current income and expenditures;
• A statement of financial affairs; and
• A schedule showing unexpired leases and executory contracts.

The debtors must provide the bankruptcy trustee with a copy of the tax return, or tax transcripts, for the most recent tax year.

Individuals filing for Chapter 7 bankruptcy have additional filing requirements. Those requirements include the filing of a certificate of credit counseling, evidence of payment from employers within 60 days of filing (if there are any), and monthly net income statement.

What Debts May Be Discharged Through Chapter 7 Bankruptcy?

Generally, it is unsecured debts that are discharged in a Chapter 7 bankruptcy proceeding. Unsecured debts are those for which the debtor has not provided any collateral that can be seized by a creditor. Some common examples of unsecured debts include credit cards, medical bills, personal loans, and amounts owed as the result of a court judgment. In most Chapter 7 proceedings, the unsecured creditors receive a small portion of what they are owed or nothing at all.

Secured debts, which include mortgages and auto loans, may also be discharged. Nevertheless, the creditor may still have the right to repossess the debtor’s property for non-payment.

Are There Debts That Cannot Be Discharged In Chapter 7 Bankruptcy?

Several types of debt cannot be discharged through a Chapter 7 bankruptcy proceeding. In other words, you will still need to pay them even when the Bankruptcy Court has discharged your other unsecured debts. Non-dischargeable debts include such things as alimony, child support, student loans, and some tax debts.

Can Filing for Chapter 7 Bankruptcy Stop Creditors From Harassing Me?

When a debtor files for bankruptcy the court will issue an automatic stay that stops all collection actions by creditors, including most lawsuits against the debtor. The bankruptcy stay is one of the most beneficial features of the U.S. bankruptcy system. The automatic stay will not apply to such things as child support, spousal support, or criminal proceedings and will not stop collection efforts for debts incurred after the bankruptcy filing.

Do Married Couples Need to File a Joint Chapter 7 Bankruptcy Petition?

A married couple is allowed to file a joint Chapter 7 petition, but they are not required to do so. But, when only one spouse files for bankruptcy, the non-filing spouse will not receive the benefits of bankruptcy. That means the non-filing spouse may still be jointly liable for certain debts that were discharged for the filing spouse. One benefit that the non-filing spouse may enjoy is that the bankruptcy filing will not appear on his or her credit report.

Additional Questions About Bankruptcy?

Contact the experienced bankruptcy attorneys at Thomas H. Curran Associates. Our attorneys have decades of bankruptcy experience and can answer any questions you may have regarding Chapter 7 bankruptcy and whether it is the best option for addressing your financial difficulties.