Chapter 7 Bankruptcy


A chapter 7 bankruptcy case does not include the filing of a plan of reimbursement as in chapter 13. Instead, the bankruptcy trustee collects and sells the debtor’s nonexempt possessions and uses the profits of such properties to pay creditors in agreement with the requirements of the Bankruptcy.

Part of the debtor’s assets may be subject to liens and mortgages that pledge the property to other creditors. Furthermore, the Bankruptcy Code will let the debtor keep some “exempt” assets; but a trustee will settle the debtor’s residual assets. Accordingly, prospective debtors ought to realize that filing chapter 7 may result in the loss of property.

To meet the requirements for liquidation of debts under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to the “Means test” relief is available under chapter 7 regardless of the amount the debtor’s owe or whether the debtor is solvent or not. An individual may not file under chapter 7 or any other chapter, nonetheless, if throughout the previous 180 days a previous bankruptcy was discharged by reason of the debtor’s deliberate failure to appear before the court or comply with court orders, or the debtor willingly dismissed the previous case after creditors pursued relief from the bankruptcy court to acquire property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).

Moreover, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code except when he or she has, within 180 days before filing, undergone credit counseling from an approved credit counseling agency. 11 U.S.C. §§ 109, 111. If a debt management plan is established in mentioned credit counseling, it must be filed with the court.

One of the main reasons to file bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no obligation for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case frequently ends in a discharge of debts, the right to a discharge is not guaranteed, and some debts may not be discharged. Moreover, a bankruptcy discharge does not relieve you from a lien on property.

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