The Basics of Chapter 7 Bankruptcy
The Basics of Chapter 7 Bankruptcy
February 04, 2022

Chapter 7 Bankruptcy is the one of the most common types of bankruptcy because it can be filed by individuals, partnerships, corporations, and other business entities to wipe out all debts.

Chapter 7 Qualification Requirements – The Means Test

To determine who qualifies for a Chapter 7 petition, bankruptcy courts have implemented the “means test,” which limits the ability to file Chapter 7 bankruptcy to low-income earners. Debtors with monthly disposable income less than the state’s median income qualify for Chapter 7 bankruptcy; however, if there is enough monthly income to pay back creditors, the court may convert the case to a Chapter 13 proceeding.

Initiating a Chapter 7 case

To initiate a Chapter 7 case, debtors must file a petition with the applicable bankruptcy court. Immediately after a Chapter 7 case is filed, collection actions are automatically halted, meaning creditors can no longer act to recover unpaid balances. All property will be placed in an “estate,” which will temporarily own all of the assets. Next, an impartial trustee will be assigned to the case to liquidate the debtor’s non-exempt assets.

Exempt Property

State laws typically govern which debts are deemed non-exempt or exempt. The nonexempted property will be liquidated and distributed, while the exempted property will remain in the debtor’s possession.

Examples of nonexempt property include:

  • Coin or stamp collections
  • Cash, bank accounts, stock, bonds, and other investments
  • Second home or vacation home
  • Second vehicle
  • Family heirlooms

Examples of exempted property include:

  • Primary motor vehicles
  • Reasonably necessary clothing, household goods, appliances, and furniture
  • Pensions
  • Equity in the debtor’s home
  • Unpaid but earned wages
  • Public benefits, including social security, welfare, unemployment, etc.
  • Personal injury damage awards

Distributions

Distributions are the Debtor’s eligible property and assets that are taken to pay back creditors. Most Chapter 7 petitions are “no asset” cases, which occurs when all the debtor’s assets are exempt and there are no distributions to be made. Typically, creditors need to file proofs of claim to be able to receive distributions; however, most creditors in Chapter 7 filings will not need to file proofs of claim because distributions are unlikely.

Debt Discharge

Dischargeability of debt is determined by the court. A discharged debt voids the debtor’s personal liability and acts as a permanent injunction to cease all creditor actions to collect the debts. In Chapter 7 Bankruptcy proceedings, more than 99% of debts are discharged.

Non-dischargeable debts include tax obligations and other debts incurred by behavior that goes against public policy, such as fraud or recklessness. Section 523 of the United States Bankruptcy Code sets forth a list of all non-dischargeable debts.

Overall, Chapter 7 bankruptcy can benefit debtors by wiping out their debt and allowing them a fresh start; however, the likelihood of debt discharge means creditors are not likely to recover debts listed in a Chapter 7 petition.

Whether you are the debtor or the creditor, you should always seek competent legal advice to help you navigate the various bankruptcy options and proceedings.

 

____________________________________________________________________________
This Blog was written by Hunter Business Law Legal Assistant Kayla Crider. 

DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. Additionally, this blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Hunter Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.

Share This
Quick Contact

    x

    Pay Invoice - Click below
    Client/invoice number not needed.

    Pay Invoice - Click below<br>Client/invoice number not needed.-Image

    Pay Deposit - Click below
    Client/invoice number not needed.

    Pay Invoice - Click below<br>Client/invoice number not needed.-Image

    Thank you for taking the time to consider Hunter Business Law to assist you with your legal needs. We appreciate you reaching out to our firm. However, due to our commitment to current client matters and to ensure we are meeting the needs of our existing client base, we are unable to onboard any new clients at this time. Again, we appreciate you reaching out, and we wish you the best of luck with your venture!