Chapter 7 bankruptcy is commonly referred to as “liquidation.” When a Debtor (you) chooses to liquidate under Chapter 7, he or she relinquishes all property that isn’t protected under the Bankruptcy Code to the bankruptcy trustee. Fortunately, in the vast majority of Chapter 7 cases, we are able to protect all of the debtor’s property using various statutes in the Bankruptcy Code! If, however, you are required to turn over any property (again, this is very rare in our cases) to the Trustee, the Trustee will sell the property and distribute the proceeds to the unsecured creditors listed in your case.
Most Chapter 7 debts will be discharged, including medical bills, credit card debt, unsecured personal loans, and secured debt (if you surrender the property that secures the loan). Of course, there are always exceptions. In a Chapter 7, most tax debts, Child Support payments, Student Loans, and Alimony orders.
Chapter 7 bankruptcy offers many pros over a Chapter 13. These include:
- Chapter 7 offers straightforward debt liquidation; in other words, you don’t have to pay back debts through repayment.
- The process itself is relatively quick, often lasting from 4 to 6 months from the time you file to the time the case is closed.
- Although you may lose some of your property (in rare cases), you are typically able to keep your house and vehicle by signing what’s called a reaffirmation agreement.
- Once you have filed for bankruptcy, creditors are absolutely prohibited from contacting you and taking aggressive collection actions or harassing you for payment.
- You are allowed to keep all property bought and income earned after filing for a Chapter 7 bankruptcy
- Although Chapter 7 will remain on your credit report for up to 10 years, it may be possible to reopen a line of credit within just months of your case being closed.
How do I qualify for a Chapter 7?
To qualify for a Chapter 7, you must be exempt from or pass the “means test.” This is a complex test used to filter out people who try to abuse the bankruptcy process. The means test takes into account your current monthly income and total debt, amongst various other factors. Furthermore, you will not qualify for a Chapter 7 bankruptcy if you have had a previous Chapter 7 or Chapter 13 Bankruptcy dismissed after a creditor requested relief from the automatic stay. You will also not qualify for a Chapter 7 if you filed for a Chapter 7 within the past 8 years prior to this filing. Simply put, there are a multitude of factors to consider in determining whether you qualify for a Chapter 7 – don’t do this alone! We are here to help!