Chapter 7 bankruptcy allows you to quickly and easily get out from under debts that are unmanageable and that you cannot pay back.
When you get into trouble with debt and are not able to pay your bills, consider seeking bankruptcy protection. As an individual consumer, there are several different kinds of bankruptcy that you can file. These types of bankruptcy are named for the chapter in the Bankruptcy Code that contains the relevant laws. One of those types of bankruptcy is Chapter 7 bankruptcy.
Chapter 7 for individuals
Chapter 7 gets its name from the chapter of the bankruptcy code that allows for this type of debt relief. Both individuals and businesses can file Chapter 7 bankruptcy. In both cases, the bankruptcy is considered to be a “liquidation” bankruptcy.
Chapter 7 bankruptcy for individuals is the right choice for those who have lots of debt but who have limited income and resources. In order to qualify for a Chapter 7, you must pass a means test. The means test looks at your income and expenses to see if you have any cash left over for debt repayment.
As soon as you file, creditors are no longer able to pursue collections activities against you. This means that collection calls and even foreclosures have to stop, at least temporarily.
The bankruptcy filing requires you to list all of your assets and all of your debts. A bankruptcy trustee will be assigned to your case to oversee your bankruptcy. You may be required to turn over some of your assets to the trustee. The trustee then distributes any cash produced to your creditors. This is why Chapter 7 is called liquidation. Any remaining debt balances are discharged, so creditors can no longer try to collect on those discharged debts.
For many people filing Chapter 7, few if any assets need to be turned over. This is because there are lots of exemptions, or laws protecting personal property in bankruptcy. Most people do not have to give up anything in Chapter 7.
Types of debts you can discharge in Chapter 7
Provided your income qualifies you for Chapter 7 bankruptcy, you are eligible to have your debts discharged. Chapter 7 allows individuals to get rid of most of their debts including credit cards, medical debts, personal loans, repossessions, and even certain types of tax debts. You cannot, however, get rid of unpaid child support or student loans. Your bankruptcy lawyer can explain exactly what kinds of debts you can and cannot resolve through a Chapter 7 filing.
If you wish to keep your home or a car and you have secured loans on these possessions, you also cannot get rid of the debt owed. You’ll need to get and stay current on your mortgage and car loan to keep them. You also have the option of surrendering these types of possessions in Chapter 7.
Chapter 7 for business
Chapter 7 for business works in a similar way to Chapter 7 for individuals. The Chapter 7 trustee will sell off business assets and proceeds are paid out to creditors. The business will need to permanently close its doors if it files for a Chapter 7. So if you want to keep the business going, you may want to consider Chapter 11 instead.
Is Chapter 7 bankruptcy right for you?
For many individuals and businesses, Chapter 7 is the best choice. Chapter 7 bankruptcy allows debts to be resolved relatively quickly without the need for an ongoing repayment plan. However, it is important to make an informed choice in each individual bankruptcy case about which chapter of the bankruptcy code will best resolve your financial difficulties. Consult with a bankruptcy attorney for advice and for help throughout the bankruptcy process to ensure you choose the right chapter of bankruptcy for you.