What is a Chapter 7 Bankruptcy?

Information about Chapter 7 Bankruptcy

This chapter bankruptcy is the most common form of bankruptcy in the United States accounting for 65% of all filings. Chapter 7 refers to the specific chapter of the federal bankruptcy code where the laws about it are written. In a chapter 7 discharge filing the debtors non-exempt assets are liquidated and the proceeds are then distributed to the creditors as determined by the bankruptcy court. After distribution to creditors the remaining debt is wiped clean and the filer is no longer obligated to pay its debts. In most cases the filing party does not have any assets to liquidate and the creditors do not get any repayment.

Chapter 7 bankruptcies are the quickest and easiest form to file for and are available to individuals, corporations, and married couples. In order to be eligible to file a chapter 7 bankruptcy you must pass the means test as established by bankruptcy laws. A means test is a simple test that compares a persons income to average income with their state and also their ability to repay debts. If you do not qualify based on the means test this probably means that you are better suited for a chapter 13 bankruptcy. In order to file a chapter 7 bankruptcy you also cannot have already filed for a bankruptcy within the last 6-8 years. If you have already filed with this time period you will also be ineligible for a chapter 13 in most situations. The cost for a chapter 7 includes a $299 filing fee and about $1000 for a lawyer.

In order to file this type of bankruptcy you will be required to fill out and submit some bankruptcy forms. Chapter 7 bankruptcy forms include forms describing your property, current income, living expenses, debts, assets that you believe are exempt from liquidation, all property owned, all money spent during the last two years, and any property you sold or gave away over the last two years. When filing these forms you need to be sure that you include as much information as possible because the court can reject your bankruptcy filing if they determine that you did not provide adequate records.

You will also be required by the courts to go through a credit/debt counseling class before you file your official paperwork. After you go through counseling and determine that you still want to file for bankruptcy and file your paperwork you will be required to sit down at a meeting with your creditors.

After filing a chapter 7 bankruptcy a trustee will be assigned to your case and they will be responsible for selling all of your non-exempt assets and distributing the proceeds to your creditors. Generally cars and homes are exemption assets and the filer is able to keep these so long as they continue to make payments and sign a reaffirmation agreement.

In most cases a chapter 7 bankruptcy will be completely finished within 60 days of filing your initial petition. A chapter 7 bankruptcy is a great opportunity for those that are way to far into debt and have no possible way of working down the debt by themselves. When deciding whether to file for a chapter 7 bankruptcy the most important thing to do is find out whether or not you really need to file for bankruptcy. If you can find a way to pay off your debts on your own then you will be better off doing that. The best thing you can do to determine whether or not a bankruptcy is the right thing to is to contact a local bankruptcy attorney for a free consultation.