Chapter 7 bankruptcy is a legal process available to individuals and businesses that are unable to repay their debts.
It is often referred to as "liquidation bankruptcy" because it involves the sale of non-exempt assets to generate funds for creditors.
Here are some key points about Chapter 7 bankruptcy:
- Asset Liquidation: In Chapter 7 bankruptcy, a trustee is appointed to oversee the process. The trustee's role is to evaluate the debtor's assets and sell any non-exempt property to repay creditors. However, certain assets may be protected under state or federal bankruptcy exemptions.
- Discharge of Debts: Upon successful completion of Chapter 7 bankruptcy, the debtor is granted a discharge. This means that the debtor is no longer legally obligated to repay most of their debts, providing them with a fresh financial start. However, some types of debts, such as student loans, child support, and certain taxes, are generally not dischargeable.
- Means Test: To qualify for Chapter 7 bankruptcy, individuals must pass a means test. The means test compares the debtor's income to the median income in their state to determine their eligibility. If the debtor's income is below the state median, they generally qualify for Chapter 7. If their income is above the median, they may be required to file under Chapter 13, which involves a repayment plan.
- Automatic Stay: When a Chapter 7 bankruptcy is filed, an automatic stay goes into effect. This puts a halt to most collection efforts by creditors, including foreclosure, wage garnishment, and harassing phone calls. The automatic stay provides debtors with temporary relief and the opportunity to reorganize their financial situation.
It's important to consult with our qualified bankruptcy attorney to understand the specific implications and requirements of filing for Chapter 7 bankruptcy, as the process can vary based on individual circumstances and jurisdiction.
