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Chapter 7 Bankruptcy Is Sometimes Called 'Debt Liquidation'

Chapter 7 bankruptcy (sometimes called "debt liquidation" bankruptcy) is the most common form of bankruptcy filed. A form of personal bankruptcy, a Chapter 7 is also know as a "fresh start" bankruptcy, as it allows you to regain control of your finances and start fresh with your debt. After completing a court-approved financial counseling session, you begin the process by filing a bankruptcy petition. This document requires information about you, your assets, your debts, and your current budget.

Documents To File With the Petition

Along with the petition, you will have to provide certain documentation regarding your wages and other income, bank accounts, retirement accounts, insurance policies, prior divorce decrees, proof of the value of your real estate and vehicles, and past tax returns. Because the purpose of these filings is to provide the bankruptcy trustee with an accurate picture of your financial condition, it is imperative that you fully reveal all of your assets and all of your debts, even those debts you wish to retain, such as your house and your vehicles.

Some Possessions May Be Safe From Bankruptcy

You may not refuse to list certain debts because you do not want a particular creditor to find out about your bankruptcy, nor may you fail to itemize personal property. You are allowed specific exemptions of real and personal property under state law. Your bankruptcy lawyer will explain these exemptions to you. In most cases, after applying the state exemptions, debtors will possess nothing for the trustee to claim. Such cases are known as "no-asset cases."

Chapter 7 Bankruptcy Wipes Out Unsecured Debt

The effect of a successful Chapter 7 filing is to discharge or wipe out your qualifying unsecured debt. Unsecured debts are debts for which the creditor does not hold any security, such as a mortgage or the title to your car. You may also discharge secured debt, such as a house and vehicle, but the creditor has the right to foreclose on your house or repossess your car. In addition, certain debts by law are not dischargeable, such as child support and alimony obligations, student loans and certain taxes.

Eligibility Requirements for Chapter 7 Bankruptcy Petitions

As a general rule, you may not file a Chapter 7 bankruptcy if:

  • You have filed a Chapter 7 within the past eight years
  • A prior Chapter 7 petition was dismissed within the preceding 180 days
  • You earn more than a statutory amount of wages as set by Congress

This limit on gross earnings varies according to the number of people in the family. This figure will be explained to you by your bankruptcy attorney. You also must meet a residency requirement to file in the proper district court.

The Process of Filing a Chapter 7 Bankruptcy Petition

When you meet with us in our Springfield, Illinois, office and decide to file a Chapter 7 bankruptcy, we will ask you to take home and complete a packet of necessary information, including information about yourself, a list of your assets, a list of your debts, and an accurate current budget. After you return the packet to our office, we will prepare the petition and you will come back to review it and sign it. As soon as we receive full payment of our fees and the filing cost, we will file the petition with the federal bankruptcy court.

About one week after you file your petition, you will receive a notice of the first meeting of creditors, giving you the time and place of your court hearing. The hearing usually takes place about seven weeks after you receive notice. During this time, as a rule, you will need to continue to make payments on secured debt, such as a house or car, that you intend to keep, as well as your normal daily living expenses, such as food, utilities, insurance, rent, clothing and Internet, but not past credit card debt or medical bills.

341 Hearing (Meeting of Creditors)

At the meeting of creditors, also called a 341 hearing, you will present your driver's license or state identification and your Social Security card to the trustee who will verify your identity. The trustee will then ask you questions about the petition, specifically about your assets, and tape record your answers. The trustee will then provide an opportunity for any creditor who appears to ask you questions. Rarely do creditors appear.

About two months after the hearing you will obtain a paper in the mail entitled Discharge of Debtor, which indicates that the file has been closed and those debts that can be discharged have been discharged. Once a debt has been discharged you are no longer obligated to make payments.

Get a Personal Case Evaluation

Submit our personal case evaluation for a free review of your financial circumstances by experienced Chapter 7 bankruptcy attorney Michael J. Logan. Or, call toll free 866-258-6719 to make an appointment.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.