Chapter 7 Bankruptcy is governed by Chapter 7 of the Bankruptcy Code and is known as a liquidation bankruptcy because non-exempt assets are liquidated and sold by the Chapter 7 Trustee for the benefit of the creditors.
Fortunately, most consumer debtors' assets are fully exempt under state or federal law and no assets are sold. When there are no assets to sell, the chapter 7 case is usually short and lasts approximately 3 months.
In addition, Debtors are required to disclose all assets prior to filing. Because of this, we will be able to help you determine whether your assets are exempt. A link to the Chapter 7 Bankruptcy Code is below.
Many vocabulary words and general bankruptcy terms are not covered in this eBook. Don't worry! Links to some of our other eBooks are below.
Chapter 7 Bankruptcy can be extremely helpful to consumers and business owners. A consumer might consider a Chapter 7 Bankruptcy if he or she has mainly unsecured debts, is current on the secured debts he or she wants to keep, has not filed another chapter 7 in the last 8 years and meets the income requirements.
A business that plans to close might consider filing Chapter 7 Bankruptcy. Often, the business will attempt to reorganize but will later convert to a chapter 7 if the reorganization is unsuccessful. Circuit City is a famous example.
A small business owner may want to file Chapter 7 Bankruptcy if he or she is planning to close the business. The business can choose to file in its own name or the business owner can file personally if the business owner has not filed a Chapter 7 Bankruptcy in the last 8 years and is current on the secured debts he or she wants to keep. As long as 51% of the business owner's debts are related to the business, the business owner's income is not compared to other families in the county. More often than not, the business owner has personally guaranteed all business debts and a personal Chapter 7 Bankruptcy offers the most benefit. However, some business owners choose to file a business Chapter 7 Bankruptcy and a personal Chapter 7 Bankruptcy concurrently.
First, there are filing requirements. Before filing a Chapter 7 Case, you cannot have received a Chapter 7 Discharge or a Chapter 11 Discharge in a case which was commenced 8 years prior to filing.
Before filing a Chapter 7 Case, you cannot have received a Chapter 12 or a Chapter 13 Discharge in a case which was commenced 6 years prior to filing, unless the payments totaled at least 100% of all allowed unsecured claims or 70% of all allowed unsecured claims, and the plan was proposed in good faith and was your best effort.
Next, a consumer debtor must meet certain income requirements to qualify for a Chapter 7 Bankruptcy. This is known as the "Means Test." The Means Test is an average of the debtor's last 6 months' income and is a comparison of your income to other families of the same size in your county. Deductions are allowed for items such as taxes, secured debt payments, court-ordered payments and medical expenses. The Means Test is extremely complicated, but we will be able to tell you whether you qualify for a Chapter 7 Bankruptcy when you provide proof of income and expenses.
First, we will meet to determine whether you qualify. You will provide several documents, such as income statements, proof of expenses and tax returns so that we can prepare your paperwork. We will also run a credit report. Determining eligibility and reviewing documents together will be divided into 2 appointments. During your third appointment, we will review all the documents that have been prepared for filing and make any necessary corrections. You will take the credit counseling class prior to filing.
After your case is filed, we will email you and you will also receive notice in the mail. You will take the financial management class after filing.
Approximately 30 to 45 after filing, you will attend a Meeting of Creditors. Don't worry, we will be there too! During this meeting, we will talk to the Chapter 7 Trustee about your paperwork and your reasons for filing. The meeting lasts 5 to 10 minutes. Creditors are unlikely to attend, and if no one objects to your discharge, your case will be discharged approximately 60 days after the conclusion of your Meeting of Creditors.
The information below comes from Sections 727 , 523 and 522 of the United States
1. A bankruptcy discharge releases a Debtor from personal lability for certain types of debts.
This means you are no longer legally required to pay those debts.
2. It is important to remember that certain debts are not discharged such as:
a. Student Loans
b. Court ordered support payments, and some non-court ordered support payments
c. Late-filed taxes and penalties
d. Certain penalties and interest related to taxes
e. Debts related to certain crimes, death or personal injury
f. Debts incurred after filing your case
g. Debts related to fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny
h. Debts related to willful or malicious injury by the Debtor to another entity or to the property of another entity
i. To the extent such debt is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss
j. A debt that could have been listed in another case and the discharge was waived or denied
k. You have entered into an agreement or have Court Orders against you regarding fraud or defalcation while you acted in a fiduciary capacity at a depository institution; or malicious or reckless failure to maintain capital at a depository
l. Restriction payments to the US government issued under Title 18 of the United States Code
m. Fines or penalties imposed under an election law
n. Post-filing HOA dues for as long as you have title to the home
o. Fees imposed on a prisoner for filing an appeal
p. Funds owed to a pension profit sharing, stock bonus, or other plan established by the IRS under 501(c)
q. Creditors who were not listed if the Debtor was aware of the creditor in time to list
3. Occasionally, a debt is excepted from discharge. Usually, a creditor does not dispute the dischargeability of a debt. However, when a creditor believes its debt should be excepted from discharge, the creditor can file a lawsuit in Bankruptcy Court. Sometimes, these creditors are not outlined in the list of creditors excepted from discharge. In this case, the creditor may still move to have its debt excepted from discharge by proving fraud. If the creditor wins the lawsuit, other debts are discharged, only the debt of the suing creditor is not discharged. Remember, the creditor who wants its debt excepted from discharge must sue in bankruptcy court first.
a. **Some of the debts in the previous section may result in a lawsuit by a creditor, but the most common lawsuits occur due to fraud, which is described below.
b. A debt may be excepted from discharge when the debt was obtained by:
c. False pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition
d. Use of a statement in writing
e. That is materially false
f. Respecting the debtor’s or an insider’s financial condition
g. On which the creditor to whom the debtor is liable for such money, property, services or credit reasonably relies; and
h. That the debtor caused or made or published with intent to deceive
i. Most commonly, this occurs when a debtor has used credit for luxury goods prior to filing. According to the Bankruptcy Code, false pretenses, false representation or actual fraud mean:
j. Consumer debts owed to a single creditor and aggregating more than $650 for luxury goods or services incurred by an individual debtor on or within 90 days before Chapter 7 was filed are presumed nondischargeable; and k. Cash advances aggregating more than $925 that are extensions of consumer credit under an open-end credit plan obtained by an individual debtor on or within 70 days before the chapter 7 was filed are presumed nondischargeable
4. There are certain instances where the Court may decide none of your debts are discharged. For instance, the Court can deny a discharge or revoke a discharge when:
a. You have filed as a business
b. You have transferred, removed, or destroyed property of the estate during the case or prior to the case with the intent to hinder, delay or defraud
c. You have committed fraud
i. Made a false oath
ii. Presented or used a false claim
iii. Fraudulently gave, offered, received or attempted to obtain money
iv. Withheld from an officer of the estate books and records
d. Failed to explain loss of assets
e. You have not followed Court Orders
f. The financial management course was not completed
g. The filing was an abuse of the bankruptcy code
h. You have lived in your home less than 1215 days, you have done any of the following and claimed a homestead exemption greater than $155,675.00:
i. Violated Federal Securities Laws
ii. Committed fraud in connection with the purchase or sale of securities
iii. You have been sued by the government and civil remedies have been imposed, or
iv. Criminally, intentionally, recklessly or willfully caused serious physical injury or death to another individual in the five years prior to discharge
i. You are not current on court ordered support payments
j. You have received a discharge in a chapter 7 case that commenced 8 years before your current chapter 7 case
k. You have received a discharge in a chapter 11 case that commenced within 8 years before your current chapter 7 case
l. You have received a discharge in a chapter 12 or chapter 13 case that commenced 6 years before your current chapter 7 case, unless you paid 100% of the allowed unsecured claims, or 70% of the unsecured claims and the plan was proposed in good faith and was your best effort good faith and was your best effort.
What happens after my discahrge?
a. The chapter 7 will stay on your credit report for 10 years
i. If you refer to the credit report we reviewed together, there is a section which disclosed bankruptcy filings. Your chapter 7 will be listed here for the next 10 years.
b. Typically, clients find their credit scores improve after a discharge and they are able to use credit right away. This is because many of your accounts were probably delinquent or sold to a collection agency.
However, you must maintain good habits to keep the higher score and continue to improve.
i. Keep making your ongoing payments for the property you have decided to keep, like your house and car, on time.
ii. Make sure you stay current on your property taxes and insurance. Don’t give your secured lenders a reason to repossess and ding your credit.
iii. Pay your utilities on time. Many utility companies only report when you all behind. Don’t give them a chance to ding your credit.
iv. If you decide to get cards again, be careful how you use them. If you are late, your credit can be negatively affected.
v. Stay current on your medical bills. Many doctors and hospitals only report when you fall behind. Don’t let them ding your credit.
vi. Don’t use pay day loans. The interest rates are extremely high.
d. You can get a free copy of your credit report from the Federal Trade Commission once per year at
The FTC also provides information about how to dispute errors on your credit report.
e. If you have questions, please contact us. You can call us at 214-696-9601 or email me at email@example.com