Chapter 7

Many people contemplating filing bankruptcy want to know about Chapter 7 bankruptcy. Chapter 7 bankruptcy, also known as straight bankruptcy or liquidation, allows people in debt to eliminate all allowable debt at once by liquidating (i.e., seizing and selling) the debtor's nonexempt assets, with the proceeds from the liquidation being used to pay some or all of the debt owed to creditors.

Exempt assets are certain types and dollar amounts of property that a debtor is allowed to keep and are protected from seizure in bankruptcy or to satisfy a judgment by federal or state statutes. For example, exemptions exist to protect certain retirement accounts, such as 401(k) plans.

At the successful completion of Chapter 7 bankruptcy, the debtor receives a "discharge." The discharge prevents creditors from attempting to collect any debt against the debtor, personally, that arose prior to the filing of the bankruptcy. In essence, the discharge effectively wipes out debts. However, it is important to note that bankruptcy proceedings cannot eliminate all debts. For instance, most student loans, child support obligations and certain tax debts are not dischargeable.

To be eligible for a discharge of debt in a Chapter 7 bankruptcy, a debtor must also pass the means test calculation, which is another document that must be completed prior to filing for bankruptcy. This test, which was added to the Bankruptcy Code in 2005, calculates whether you are able to afford, or have the "means," to pay your debts. The means test annualizes your income for the past six months and compares it with the median income for your place of residence. The means test also includes your secured debt in determining whether you can afford to pay your debts. If you fail to pass the means test, you can file Chapter 7 bankruptcy only under very specialized exceptions.

Chapter 7 bankruptcy is most often used to stop garnishment of wages or collection of debts or judgments. Generally, to stop foreclosures or prevent the repossession of a vehicle, Chapter 13 is the best option.

If you are struggling with unmanageable debt and need help, we are pleased to offer a consultation with an experienced attorney. Our attorneys will answer your questions regarding your financial issues and concerns and develop personalized solutions for your financial problems, including determining whether Chapter 7 bankruptcy is right for you.

Your initial office visit with one of our bankruptcy attorneys is free.

The attorneys of Gentry Arnold PLLC are members of the National Association of Consumer Bankruptcy Attorneys.

We are a debt relief agency. We help people file for bankruptcy under the U.S. Bankruptcy Code.