Chapter 7 Bankruptcy

Let’s start off with discussing what a Chapter 7 bankruptcy is.  A chapter 7 bankruptcy is basically a liquidation proceeding.  The debtor will turn over all of their non-exempt property to the bankruptcy trustee who then converts it to cash for distribution to the various creditors listed in the bankruptcy paperwork.   Bankruptcy laws do vary by state so please be sure to check with a licensed bankruptcy attorney in the state in which you will file.

In order to file for a chapter 7 bankruptcy you must reside, have a place of business, or property in the United States plus you must not have been granted a Chapter 7 discharge within the past six years or have completed a chapter 13 repayment plan.  Additionally you must not have had a bankruptcy filing dismissed for cause within the past six months and you must pass a means test.

So now that you understand what a chapter 7 bankruptcy is and what qualifications you must have to file, let’s look a bit more about why people would need to file for chapter 7 bankruptcy.  There are many reasons, and they vary by person, but the most common reasons are unemployment, very large medical expenses, marital problems, and any other type of unexpected but large expense. 

The bankruptcy laws changed in 2005 and now all petitioners are required to attend debt counseling courses within six months prior to filing for protection under the chapter 7 bankruptcy laws.   To find a listing of government-approved credit counseling organizations please visit the US Trustee Program at the US Department of Justice.  In addition prior to completion of the chapter 7 bankruptcy proceedings, you will also be required to complete a financial education course.  The list of approved providers of personal financial management instructional courses can be found on the US Trustee website as well.

Once you file your petition for protection under the chapter 7 bankruptcy laws many creditor actions must cease and desist.  This includes collection calls, foreclosure procedures, and other efforts to collect a debt.  At this point having a very knowledgeable lawyer comes into play as it is time to determine what happens to your assets.  There are some exemptions; we’ll cover those in our Bankruptcy Exemptions topic.