Understanding Chapter 7 Bankruptcy

A Chapter 7 bankruptcy involves a complete liquidation of the debtor's assets

. A trustee takes control of any available assets that are not exempt, sells the assets for cash and distributes the cash to the debtor's creditors. In many Chapter 7 bankruptcy cases there are no assets to disperse because all of the debtor's assets are exempt. In most cases, the debtor is not required to go to court. This type of bankruptcy discharges most debts, excepting those that are cannot be discharged due to federal law.

Which Assets are Exempt from Chapter 7 Bankruptcy?

Chapter 7 allows debtors to keep many of their assets because the exemption laws are generous. The debtor is usually allowed to keep their home, vehicle, jewelry, retirement accounts, bank accounts and more. It is important for the debtor to remember that they cannot file bankruptcy again for at least seven years after their current case is discharged, so they should only keep the assets that they will be able to afford.

Which Debts Cannot be Discharged?

It is essential that the debtor list all of their debts on their bankruptcy forms because any debts that are not listed on the forms will not be discharged. Government debts such as taxes, child support and alimony cannot be discharged. Student loans and other educational benefits are also exempt from bankruptcy laws.

Who is Eligible to File Chapter 7?

Not everyone who files bankruptcy meets the requirements for a Chapter 7 case. First the debtor must pass a means test to show that they do not have the means to pay their outstanding debts. Debtors must prove that their income does not exceed the median income that has been established in their state. The debtor also has to take an approved course on credit counseling within 180 days before they file for bankruptcy. The debtor will receive a certificate that shows they have completed an approved course. An approved course on fiscal management must also be taken by the debtor before their bankruptcy can be discharged. The courses are available in person, but most people find it more convenient to take the online version of the classes.

How Long Does It Take?

The amount of time it takes for a Chapter 7 case to be discharged depends on the individual circumstances, but a case that is not contested is generally discharged in about four months. A creditor may object to the bankruptcy filing and show that the paperwork is incorrect or there are inconsistencies. If this happens, there may be a trial before a judge and the case may not be discharged for six months or more. Hiring an experienced bankruptcy lawyer is essential because they know which information you need to make the process go smoothly.

by: Peter Wendt

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