Chapter 7

Chapter 7 is a proceeding in which a debtor basically says to the Bankruptcy Court “Take my non-exempt assets (property), sell them, use the proceeds to pay my debts and then discharge (cancel) the remaining unpaid debts.”

A Chapter 7 in which there are assets to be sold is an asset case; a Chapter 7 in which there are no assets to be sold is a no asset case. Most all Chapter 7 proceedings are no asset cases because each debtor is given certain exemptions by federal and state law.

The purpose of Chapter 7 is to provide an honest debtor with a “fresh start” by discharging certain debts. The bankruptcy law provides that all debts are discharged (wiped out) except for a few specific exceptions.

Certain debts are non-dischargeable, which means that you will still owe them even after your bankruptcy. Some examples of these non-dischargeable debts are certain state and federal taxes, most student loans, and debts that were induced or extended by fraud.

If you qualify for and choose to file Chapter 7, your attorney will prepare and deliver a petition to the bankruptcy court. As soon as the petition is filed, federal law imposes an automatic stay. This prevents creditors from taking any action to collect debts you owe. Wage garnishments and repossessions, as well as any pending lawsuits, are stopped.

Once the bankruptcy is over, creditors holding claims that are not discharged may proceed to collect the debt. In addition, under some circumstances a secured creditor may proceed to collect a debt on the lien held on the debtor’s asset during the bankruptcy proceeding. The creditor may do so only by filing a court motion and receiving the approval of the bankruptcy court.

Approximately 30 days after the filing of the petition, the debtor will meet with a trustee who reviews the petition. Creditors may attend this meeting. In a typical Chapter 7 case, the discharge of the debts takes roughly three to four months.