Chapter 7 Bankruptcy
Chapter 7 Bankruptcy or Liquidation
Chapter 7 bankruptcy is a debt solution that can allow you to eliminate most or all of your unsecured debts.It is usually considered a last resort, as it is damaging to an individual’s credit rating and credit report, but people should consider it when the debt is well out of proportion to their ability to repay. There are many cases when bankruptcy is certainly called for.
Chapter 7 bankruptcy is commonly used when you have little property except for basic necessities like furniture and clothing, and little expendable income after meeting your basic expenses each month. If you have non-exempt assets (assets over and above those provided for in your exemptions), you will be required to liquidate them in order to repay creditors. You will also need to meet a “means test” if your income is more than the state median, in order to qualify for a chapter 7 bankruptcy.
What are non-exempt assets? This will vary from state to state. You should compare the state exemptions allowed in your state of residence to the list of federal exemptions, if your state permits residents to file bankruptcy using federal exemptions. See exemptions by state to see if your state will allow you to file bankruptcy using federal exemptions, and read more about exemptions.
Generally, 99% of cases receive a discharge in chapter 7. This means that occasionally the court may deny the debtor a discharge of the debts. Some of the reasons for a denial may be:
- failing to explain any loss of assets
- committing a bankruptcy crime such as perjury
- failing to obey a lawful order of the bankruptcy court
- transferred, concealed, or destroyed property that would become part of the estate
- failing to complete the required instruction courses
Secured creditors may retain rights to seize property even after discharge. Depending on circumstances, debtors who wish to keep certain secured property can decide to reaffirm their debts. If theywish to reaffirm a debt, they must do this before the discharge is entered, by signing a written affirmation agreement and filing it with the court.