Chapter 7 Bankruptcy

What is a Chapter 7 Bankuptcy?
A Chapter 7 bankruptcy case does not involve a plan of repayment, unlike a Chapter 13 case. Instead, the bankruptcy trustee has the option/right to gather and sell the debtor’s nonexempt assets to pay back holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee may liquidate the debtor’s remaining assets. Potential debtors should be aware that filing of a petition under Chapter 7 may result in the loss of property.

How are Discharges handled?
A discharge releases the debtor’s liability for most or all debts and adds protection from the owed creditors from taking any collection actions against the debtor. Because a Chapter 7 discharge is subject to many exceptions, debtors should consult one of our competent legal attorneys before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of Chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days from the 341 meeting (meeting of creditors). Fed. R. Bankr. P. 4004(c).

Who qualifies for Chapter 7?
To qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the means test (a basic assessment for Chapter 7 eligibility), relief is available under Chapter 7 irrespective of the amount of the debtor’s debts or whether the debtor is solvent or insolvent. However, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens, an individual cannot file under chapter 7 or any other chapter. 11 U.S.C §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

How does filing Chapter 7 help?
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. In a Chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not definite, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.