Chapter 7 Bankruptcy
Chapter Seven (7), sometimes referred to as a "straight bankruptcy," is a liquidation proceeding where a debtor must turn over all of his non-exempt property in exchange for the elimination of certain debts. This Chapter is generally used by people with high amounts of unsecured debts. Unsecured debt is debt where there is no collateral or items that a creditor can take if the payments are not paid. Usually a debtor has a great deal of medical bills or credit card debt when filing under this Chapter.
A debtor is allowed to keep certain debts. Most debtors elect to keep their house and motor vehicles although this is not required. If a debtor elects to keep his house or vehicle, he cannot change the amount of the note.
A debtor is allowed to keep his real property if it is considered his homestead.
Some debts are non-dischargeable such as certain taxes, student loans, criminal fines, child support and alimony.
Credit counseling must be done before filing and again prior to discharge.
To be eligible for Chapter 7, a debtor must pass the "means test" as to his income. This is a test based upon your past and future household incomes and the number of people in your household. The amount of income varies from year to year.
All exempt assets will not be taken by the Trustee.
A debtor is allowed to file a Chapter 7 every eight (8) years.
If a co-debtor exists on a debt, the co-debtor remains liable for the amount.
Both spouses do not have to file, however, if both spouses are on the debt the other will remain responsible for the debt.
As to credit card debt, any charges made within ninety (90) days of filing may not be eligible for discharge. A creditor may file an objection to this debt.
After filing bankruptcy, the debtor must attend a 341 creditor's meeting. This is a meeting in which the Trustee and creditors can ask questions of the debtor.
For debtors looking to rid themselves of unsecured debts, Chapter 7 is the preferred chapter.