Chapter 7 Bankruptcy
Chapter 7 bankruptcy, sometimes called “liquidation bankruptcy,” provides individuals and businesses with a fresh financial start by eliminating most unsecured debts. It's the most common form of bankruptcy and can offer fast relief from overwhelming debt.
How Chapter 7 Works
In a Chapter 7 case, a bankruptcy trustee is appointed to review your assets and determine if any non-exempt property can be sold to pay creditors. In most cases, all of your property is protected by exemptions, and you won't lose anything. Most unsecured debts are then discharged, typically within 3-4 months.
What Debts Can Be Eliminated?
Credit Card Debt
Medical Bills
Personal Loans
Utility Bills
Past Due Rent (in most cases)
Business Debts
What Debts Cannot Be Discharged?
Recent taxes
Child Support and Alimony
Debts from fraud or willful injury
Court fines and penalties (in most cases)
Eligibility Requirements
To qualify for Chapter 7 you must pass the “means test,” which compares your income to the median income in your state. If your income is below the median, you generally qualify. If above, additional calculations determine eligibility based on your disposable income. Otherwise, you may qualify if the majority of your debts qualify as business debt.
Time to “Discharge”
The process typically takes 3-4 months from filing to discharge. You'll attend one meeting with the trustee (called the 341 meeting) where you'll answer questions about your finances under oath. Most cases proceed smoothly without court appearances, but each case is different.