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 they 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.
Debtors are required to pass a means test calculation to be eligible for a discharge of debt in a Chapter 7 bankruptcy. The means test adds an additional document that must be completed before a bankruptcy filing. The purpose of the means test is to determine whether you have sufficient income or resources to pay your debts. It uses a representative sample of your income which is compared to the median income for people who live in the same region. In addition, the means test looks at your secured versus unsecured debt to get a better understanding of your ability to get out from under debt without the help of Chapter 7 bankruptcy. If the means test determines that you do have the ability to pay off your debts, your ability to file for Chapter 7 will be limited to specific circumstances. There may be other debt relief options available to you, as well.
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 they will 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. Contact us today.
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.