Chapter 7: A Basic Overview

Chapter 7, also known as debt discharge, is a form of bankruptcy where the person filing receives a discharge (or cancellation) of their debts by the court. The discharge can potentially include some or all of the person’s debts. During the bankruptcy process, the court has the right to liquidate parts of the person’s property, giving the proceeds to pay back outstanding debts. In other words, the bankruptcy court cancels the person’s debt in exchange for property that can be used to help pay creditors. Chapter 7 is the most common form of personal bankruptcy.

Who Can File?

For you to file for Chapter 7, you must first be eligible. To begin with, you’ll need to have no previous Chapter 7 discharge within eight years, as well as no Chapter 13 discharge within six years of the date you plan to file. You will also need to be able to attend credit counseling classes required by the bankruptcy court. In addition, you must pass a prerequisite known as the “means test.” The means test is an income criterion that measures the person’s ability to repay their debts. If the means test established by your state determines that your income is low enough, you can file for Chapter 7 bankruptcy.

Dischargeable Debts

As mentioned earlier, not all types of debt can be discharged in a Chapter 7 bankruptcy. Some debts are dischargeable – others are not. Dischargeable debts include business debts, leases, personal loans, credit card debts, and negligence judgments. Examples of non-dischargeable debts include taxes, student loans, child support, and charges in criminal lawsuits. To determine whether Chapter 7 is the right choice, it is important to assess the current types of debt you owe and determine the impact of bankruptcy on your finances. 

What Happens To My Property?

Property is an extremely important consideration in a Chapter 7 bankruptcy. Any property that is considered “nonexempt” can be repossessed by the court and sold to pay back your debts. Nonexempt property includes collector’s items, family heirlooms, cash savings and investments, musical instruments, and second homes or cars. Exempt property – which cannot be taken – includes household appliances, public benefits, pensions, and clothing. In some cases, even nonexempt property will be left alone by the court, simply because it is not worth the time to sell.

The Process – How Does It All Work?

There are several important stages in the Chapter 7 bankruptcy process. The very first step to take is called filing a Chapter 7 petition. Filing a petition presents your bankruptcy case to the court and officially begins the process. As long as the personal filing meets basic eligibility requirements, the bankruptcy court will then issue an automatic stay. The automatic stay prevents creditors from collecting on debt while the case is in progress –meaning lawsuits, calls from collectors, and wage garnishment activities will all need to stop. Next, the court will appoint a trustee to oversee the bankruptcy case. The trustee’s primary responsibilities are to manage documentation and facilitate the sale of property to pay creditors. At some time, the trustee will schedule a creditors meeting – an in-court meeting where the details of the case, including property that should be sold, will be evaluated. If the case passes through the creditors meeting, a hearing to discharge debts covered by the bankruptcy will be scheduled. After debts are discharged, they no longer can be pursued by creditors or collectors.

Getting Started

If you are considering filing for Chapter 7, make sure to get all the information you need. Get in touch with a Chapter 7 bankruptcy lawyer or other professional that can provide advice about your situation. There’s no reason to rush or act without proper consideration – but if you decide to file, be prepared to pay a moderate filing fee, and have all the necessary information ready.