Chapter 7 bankruptcy is available for individual debtors, partnerships or corporations, although in a Chapter 7 case a discharge is only available to individual debtors, not to partnerships or corporations. If you are an individual filing Chapter 7 bankruptcy you may be able to receive a discharge for certain qualifying unsecured debts. Not all unsecured debts are discharged and not all individuals will qualify for Chapter 7 bankruptcy.
Chapter 7 bankruptcy process
If you qualify for Chapter 7 bankruptcy you will be required to complete a credit counseling course, the bankruptcy petition and the appropriate schedules. All of your information must be presented to the appropriated bankruptcy court.
When the court processes the Chapter 7 bankruptcy petition an automatic stay is initiated which will stop harassing creditor actions, bank account levies, repossessions, and most wage garnishments. Under some conditions some creditors may be allowed to request a waiver and begin collection efforts again.
A trustee will also be assigned by the court to collect your non-exempt assets (those not protected under federal or state bankruptcy laws) and liquidate them. The proceeds generated from the sale will be distributed to your creditors.
A meeting will be held with your creditors, and assuming there are no objections to the discharge of your unsecured debts, your qualifying unsecured debts will be discharged within 4 to 6 months from the date the petition is submitted to the court.
Unsecured debts not discharged under Chapter 7
Whether Chapter 7 bankruptcy is right for you will depend on your debts. There are specific debts which are not discharged with bankruptcy. If the debts you have are not dischargeable, you should find another solution to your financial crisis. Unsecured debts not discharged include the following:
- Debts not listed on the schedules.
- Student loan debts unless the debtor can prove undue hardship.
- Recent state, local and federal tax debts.
- Child support and spousal support payments.
- Court fees.
- Debts from a criminal DUI case.
- Government-imposed restitution, fines, and penalties.
- Debts determined by the court to be non-dischargeable due to a debtor’s fraudulent actions.
Who can file Chapter 7 bankruptcy?
Prior to 2005 and updates to bankruptcy laws, it was much easier for individuals to receive a discharge for their debts under Chapter 7 bankruptcy. In 2005, however, bankruptcy laws were updated to force debtors with a high income or those who had sufficient disposable income to repay a portion of their debts through Chapter 13 bankruptcy.
To file Chapter 7 bankruptcy you will have to either have limited income or you will have to pass a means test to prove you do not have enough disposable income to repay your debts. Talk to a bankruptcy lawyer for more information about bankruptcy filing limits in your state.
Consider also, if you have filed bankruptcy within the last several years, if you have filed multiple cases to delay creditors from collecting debts, if you have willfully disobeyed court orders, or abused the bankruptcy system, you may not be able to file Chapter 7 bankruptcy.