Background. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. A. Chapter 7 is a bankruptcy provision most frequently used by individuals involving liquidation of one’s assets. In a liquidation proceeding, the debtor turns over all non-exempt property to the bankruptcy trustee who converts it into cash for paying off creditors. It depends on which kind of bankruptcy you file. In a chapter 7 bankruptcy, a person must list all of his or her property and debts. There are limits on the amount of property one can keep while still eliminating debt, although there are exemptions for certain types of assets (for example, your house or car).
Chapter 7 is that part of the federal bankruptcy laws permitting a person to discharge certain debts by filing a case in the bankruptcy court, turning all of his or her nonexempt property over to a trustee, and obeying the orders and rules of the court. It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor.
A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not released by a Chapter 7 discharge, and some persons are not eligible for a Chapter 7 discharge. All debts of any kind or amount, including debts incurred in other states, are released by a Chapter 7 discharge, except those listed below. The following types of debts cannot be discharged under Chapter Any person who resides in, who does business in, or who has property in the United States may file under Chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last days on certain grounds.
It may not be wise, however, for a debtor to file under Chapter 7 if he is not eligible for a Chapter 7 discharge or if some of his debts will not be released by a Chapter 7 discharge.
Also, it may not be wise for a debtor with sufficient current income with which to repay a substantial portion of his debts within a reasonable period to file under Chapter 7, because the court may dismiss the case as constituting an abuse of Chapter 7.
If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within days. The period for payment may later be extended to days by the court if a valid reason exists for doing so.
In the office of the clerk of the Bankruptcy Court in the district where the debtor lived or maintained his or her principal place of business for the greatest portion of the last days. Both husband and wife should file if some of the debts to be discharged are owed by both spouses. If both spouses are liable for some of the debts and if only one spouse files under Chapter 7, the creditors often try to collect from the non-filing spouse. A husband and wife may file a joint petition under Chapter 7, using the same set of forms.
Also, only one filing fee is charged for a joint case. The debtor should follow these rules:. The filing of a Chapter 7 case automatically stays most lawsuits and attachments that have been filed against the debtor.
A few days after a Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If the debtor cannot wait this long, it is permissible for him or his attorney to notify one or more of the creditors of the filing of the case. Any creditor who intentionally violates this court order may be liable to the debtor in damages.
The most common actions not affected by the filing of a Chapter 7 case are criminal proceedings and actions for the collection of debts for alimony, maintenance, or support from exempt property or from property or funds acquired or earned by the debtor after the case was filed. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under Chapter 7. A debtor is allowed to keep his unmortgaged exempt property in a Chapter 7 case and must turn only his nonexempt property over to the trustee in the case.
In many Chapter 7 cases, no creditors appear in court; however, if a creditors does make an appearance, he or she will be allowed to question the debtor. After the meeting of creditors, the trustee may contact the debtor regarding the collection or existence of nonexempt property and the court may issue orders to the debtor. These orders may require the debtor to turn certain property over to the trustee or provide the trustee with certain information.
In addition, the trustee has certain administrative duties in a Chapter 7 case and is the officer in charge of seeing to it that the debtor performs the duties required of him or her in the case. A trustee is appointed in a Chapter 7 case even if the debtor has no property for the trustee to collect. If the debtor does not cooperate with the trustee, then the case may be dismissed and the debts may not be discharged.
It is usually converted into cash, which is later used to pay the administrative expenses of the trustee and to pay the claims of creditors. The trustee is permitted to pay himself a fee, which is based on a percentage of the amount collected from the debtor.
A trustee will be appointed, however, even if the debtor has no nonexempt assets for the trustee to collect, and the debtor must cooperate with the trustee. A creditor must prove the validity of the mortgage and obtain a court order, however, before repossessing or foreclosing of any property and the debtor should not turn any property over to a creditor until a court order has been obtained.
How can filing for bankruptcy help with creditors? After you have prepared and filed your bankruptcy paperwork, the court clerk will notify all of your creditors of your bankruptcy filing and inform them that they may no longer contact you.
The clerk's notice will also include information about your meeting of creditors If your creditors continue to pursue you after receiving notice of your bankruptcy, they are subject to sanctions by the bankruptcy court. How does chapter 13 differ from chapter 7? Chapter 13 sometimes called a "wage earner plan" allows an individual to pay his or her debts over an extended period using a court-approved, supervised, and enforced payment plan.
Not all creditors need be paid in full and unpaid amounts will be discharged with some exceptions. Chapter 13 bankruptcy filers help create their own payment plans, which give them three to five years to pay personal debt from their disposable incomes i.
In a Chapter 13 bankruptcy, individuals are often allowed to keep their property. Do I have to list all of my property when I file for bankruptcy? Bankruptcy laws require that you fully disclose all of your assets. Trustee's office examine bankruptcy filings. Even if your assets are not listed in your paperwork, they will be found.
It is a federal crime -a felony - to commit bankruptcy fraud. Do not attempt this. I'm married - does my spouse have to file for bankruptcy too? No, you and your spouse are not required to file for bankruptcy together. However, you may both want to file for bankruptcy jointly if you and your spouse share responsibility for the debt.
If you and your spouse have co-signed a debt together, this may be a debt that the two of you share. For instance, if you have bought a car together, you may both have signed for the loan. If you live in a community property state Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin or have opted in to community property arrangements in Alaska, you and your spouse are jointly responsible for debts either or both of you incurred during your marriage, even if you did not "co-sign" for them.
This may impact whether or not you decide to file jointly or whether you want to file on your own. Who will know about my bankruptcy? Like most court records, bankruptcy filings are public. However, this does not mean that all of your personal information will be available to everyone who wants it. In most cases, your friends and family will not find out about your bankruptcy unless you tell them.
Direct notice of your bankruptcy will be sent to your creditors and co-debtors if any. Your bankruptcy will be reported to the major credit bureaus, and will stay on your credit report for ten years, though many credit reporting agencies will remove it after seven. Companies that run credit checks will know about your bankruptcy from these reports.
If you have an ex-spouse who receives child support from you, he or she will receive a letter informing them of your bankruptcy, and information about what to do if the child support does not continue. Finally, although most employers are not told of your bankruptcy, a chapter 13 trustee may request a wage withholding order to your employer if you fall behind on your chapter 13 plan payments. Why do people choose to file chapter 7 over chapter 13 bankruptcy?
The primary differences between a chapter 7 and a chapter 13 bankruptcy filing are as follows: 1 chapter 7 tends to have lower fees. However, you can file for chapter 13 more quickly since the fees can be paid over time. You cannot file for chapter 7 until you have paid all of the fees. The bankruptcy court will automatically grant a discharge if the trustee and the creditors don't object on supportable grounds.
The last day to file a complaint objecting to a debtor's discharge is 60 days after the meeting of creditors, or after the date of the first meeting if it's continued and carried over to another date or dates. The discharge is usually entered several days later if no complaint is filed. Some debts, including certain taxes and child or spousal support obligations, aren't dischargeable. They'll survive the Chapter 7 proceedings and you'll still owe them.
A creditor can also still collect on a discharged debt from a co-debtor if someone signed on the loan or debt with you and didn't file for bankruptcy. United States Courts. National Consumer Law Center. United States Department of Justice. What Is Bankruptcy.
Bankruptcy Types. By Full Bio. David is a full-time attorney experienced in basic bankruptcy concepts as well as advanced issues such as secured transactions, liens, and lawsuits in bankruptcy court. Read The Balance's editorial policies. Reviewed by. Full Bio Follow Linkedin. Somer G. Anderson is an Accounting and Finance Professor with a passion for increasing the financial literacy of American consumers.
She has been working in the Accounting and Finance industries for over 20 years. Article Reviewed on May 27, Common exemptions include:. Plan to spend about two hours in person, online, or on the telephone in each class. Article Table of Contents Skip to section Expand. Chapter 7 Bankruptcy Explained. Exempt Property.