Chapter Seven (7), sometimes referred to as “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 lot 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.