Chapter 7 bankruptcy

Chapter 7 is the most common form of bankruptcy in the United States.

Liquidation under a Chapter 7 filing involves the appointment of a trustee who collects the non-exempt property of the debtor,sells it and distributes the proceeds to the creditors. Because each state allows for debtors to keep essential property, most Chapter 7 cases are "no asset" cases, meaning the debtors keep all their property.

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.

A chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the chapter 7 petition.

In order to complete the official bankruptcy forms which make up the petition and schedules, the debtor(s) will need to compile the following information:

  • The source, amount and frequency of the debtor's income
  • A list of all creditors and the amount and nature of their claims
  • A list of all of the debtor's property
  • A detailed list of the debtor's monthly living expenses (food, clothing, shelter, utilities, taxes, transportation, medicine, etc.)
  • If a husband and wife have filed a joint petition, they both must attend the creditors' meeting. The trustee also will attend this meeting. It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests.

    Chapter 7 bankruptcy is often the better option for those whose debts, such as credit card debt and medical bills, are mostly unsecured.
    Student loans can't be forgiven, secured debts such as car loans will often require a different tactic, taxes can't be wiped away and alimony or child support payments must still be paid off.

    If you don't have many assets, your income is below the median, and the majority of your debts are not secured, Chapter 7 bankruptcy might be your best option.

    Contacting a lawyer to discuss your situation to see if Chapter 7 is the answer for you will be a wise first step. After going over all of your debts, assets and individual circumstances, your legal representative can offer advice about whether this is the right choice for you.