Learn More About Chapter 7 Bankruptcy

Anyone can find themselves facing mounting debt and dwindling options to pay it off. When bills pile up and harassing calls from debt collectors make everyday life a nightmare, filing for bankruptcy can help you get a fresh start. There are different types of bankruptcy, known as Chapter 7, Chapter 13 and Chapter 11, and each eliminates debt in different ways.

On this page, we have outlined answers to the essential questions many of our clients have about Chapter 7 bankruptcy. Of course, every case is different. For help determining what type of bankruptcy is the best option for your case, call our firm to schedule a consultation.

How does Chapter 7 get rid of debts?

This type of bankruptcy eliminates debts through liquidation. This means your property and assets are sold to pay off creditors and any remaining debt is discharged. The primary benefit of Chapter 7 is that it eliminates all eligible debts at once. It does not necessarily mean losing all your assets, as certain dollar amounts of different categories of property can be claimed as "exempt," meaning they are safe from being seized and sold to pay creditors.

How can I make creditors stop calling me?

We understand how stressful and disruptive it is to have creditors constantly calling. Filing for bankruptcy stops these calls, immediately. Even if you do not qualify for Chapter 7, there are restrictions on when and how many times a day a creditor can call. An experienced bankruptcy attorney can help you stand up to creditors who are not following the rules.

Will everything I own be liquidated?

No. Certain types of property are protected from being sold in bankruptcy. This typically includes your residence, car and certain personal property, although there are dollar amount limits on the assets that are protected. You can also keep your 401(k) and other retirement accounts. In most Chapter 7 cases we file, our clients are able to claim all their property as "exempt."

Can I discharge my student loan debt through Chapter 7 bankruptcy?

In general, student loans are not dischargeable in bankruptcy. However, discharging any other debt through Chapter 7 can help to make your student loan payments more manageable.

How do I qualify for Chapter 7?

Someone filing for Chapter 7 bankruptcy must pass a "means" test that examines your ability to pay your debts based on your income over the past six months. It also compares your income with the median income where you live. If your income is greater than a certain amount (which varies depending on several factors, including how many dependents you have), you may have "disposable income" that renders you ineligible for a Chapter 7 case.

What types of income are considered in the means test?

When the means test calculates your income, it includes:

  • Wages or salary
  • Tips, commissions, overtime and bonuses
  • Rent collected on real property
  • Child support
  • Spousal support
  • Unemployment payments
  • Workers' compensation
  • Stock dividends
  • Royalties

If you own a business, the means test also includes gross income from that business.

Can Chapter 7 prevent my vehicle from being repossessed?

It is sometimes possible to redeem your vehicle, which is essentially a forced refinancing of your car loan through a third-party lender. There are limitations on the redemption process, and Chapter 7 is more often used to prevent civil judgments, wage garnishment and debt collection, including calls from collectors. If you want to protect your vehicle from repossession, Chapter 13 bankruptcy may be a better option for you.

What happens if I have filed for Chapter 7 before?

If you discharged debt through this type of bankruptcy in the past eight years, you cannot file again until the time limitation ends. However, you may still be able to get relief from creditors through a Chapter 13 case.

If my ex files for Chapter 7 bankruptcy, will I lose child support payments?

No. Child support is considered a "priority debt" that means it cannot be discharged in bankruptcy. Your ex will still be required to pay child support, even if he or she is successful in eliminating other debts through Chapter 7.