What is Chapter 7 Bankruptcy?

Chapter 7 bankruptcy is one of the many types of bankruptcy available to debtors under the United States Bankruptcy Code. Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors whose debts are primarily consumer debts are subject to a “means test” designed to determine whether the case should be permitted to proceed under chapter 7. If the income of the debtor is greater than the median income for the state of debtor’s state of residence and family size, in some cases, creditors have the right to file a motion requesting that the court dismiss your case under the bankruptcy law.

A debtor liquidates their non-exempt assets and receives a discharge from the United States Bankruptcy Court in a chapter 7 bankruptcy proceeding. A bankruptcy trustee may have the right to take possession of and sell property that is not exempt. The trustee uses the money from the sale of unprotected assets to pay creditors. Most consumer debtors are able to protect most of their assets in a chapter 7 bankruptcy.

The purpose of filing a chapter 7 bankruptcy is to obtain a discharge of existing debts. If a debtor is found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny a discharge and, if it does deny the bankruptcy discharge, the purpose for which the bankruptcy was filed would be defeated.

Even if a debtor receives a discharge from the bankruptcy court, some particular debts are not discharged under the bankruptcy law. Debtors filing chapter 7 will usually be responsible for most taxes and student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in the bankruptcy petition; and debts for personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or dugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

It is possible to keep your property and still obtain a discharge of your debts in a chapter 7 bankruptcy. In a chapter 7, a debtor can decide to reaffirm, or repay, any debt they choose. A debtor can continue to pay for house or a car while still getting rid of the rest of their burdensome debt.

A complete financial analysis available during a free bankruptcy consultation must be conducted by one of the bankruptcy lawyers from The Law Offices of Tom C. Smith to determine whether or not you qualify for a chapter 7 bankruptcy.