In Chapter 7 bankruptcy, the bankruptcy trustee cancels many (or all) of your debts. At the same time the trustee might also sell (liquidate) some of your property to repay your creditors. Chapter 7 bankruptcy, also called "straight" or "liquidation" bankruptcy, is so named because the law is contained in Chapter 7 of the federal Bankruptcy Code. Here's an outline of Chapter 7 bankruptcy -- who can file, how the process works, and what happens to your property and debts.
Frequently asked questions
Chapter 7 Bankruptcy Costs in Time and Money
The whole Chapter 7 bankruptcy process takes about four to five months, costs $335 in filing and administrative fees, and usually requires only one trip to the courthouse to meet with your bankruptcy trustee. You must also complete credit counseling with an agency approved by the United States Trustee. We will give you this credit counseling information when you meet with one of our attorneys.
Who Can File for Chapter 7 Bankruptcy?
You won't be able to use Chapter 7 bankruptcy if you already received a bankruptcy discharge in the last six to eight years (depending which type of bankruptcy you filed) or if, based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan. Our attorneys can explain more about the Chapter 7 eligibility requirements.
Bankruptcy's Magic Wand -- The Automatic Stay
Filing for Chapter 7 bankruptcy puts into effect something called the "automatic stay." The automatic stay immediately stops creditors from trying to collect what you owe them. So, at least temporarily, creditors cannot legally grab ("garnish") your wages, empty your bank account, go after your car, house, or other property.
Bankruptcy Court's Control Over Your Financial Affairs
By filing for Chapter 7 bankruptcy, you are technically placing the property you own and the debts you owe in the hands of the bankruptcy court. You can't sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court's consent. However, with a few exceptions, you can do what you wish with property you acquire and income you earn after you file for bankruptcy.
The Bankruptcy Trustee for Chapter 7 Bankruptcy
The Creditors Meeting
A week or two after you file, you (and all the creditors you list in your bankruptcy papers) will receive a notice that a "creditors meeting" has been scheduled. The bankruptcy trustee runs the meeting and, after swearing you in, may ask you questions about your bankruptcy and the papers you filed. In the vast majority of Chapter 7 bankruptcies, this is the debtor's only visit to the courthouse. Also, usually no creditors show up to this meeting.
What Happens to Your Property
How Your Secured Debts Are Treated
The Chapter 7 Bankruptcy Discharge
debts that automatically survive bankruptcy, such as child support, most tax debts, student loans, and criminal fines, and
debts that the court has declared nondischargeable because the creditor objected (for example, debts incurred by your fraud or malicious acts).