Both Chapter 7 bankruptcy and Chapter 13 bankruptcy provide you protection from your creditors and a discharge of certain kinds of debt. In Chapter 7 bankruptcy, the focus is on the discharge.
Here’s what usually happens: You file your petition (which is a collection of documents some fifty pages long) with the court. About a month later, you go to a hearing before the Chapter 7 trustee, and then following a two-month notice period after that, the court issues a discharge order.
There are different kinds of debt:
- General unsecured debt (credit cards, personal loans, medical bills, deficiencies on repossessed cars and foreclosed homes): This is discharged at the end of a Chapter 7 bankruptcy case. Your legal obligation to pay is gone, and their right to collect is gone.
- Secured debt (usually mortgages or car loans). Here you basically have two choices: keep the thing and keep the debt (which is what people often do with their car loans) or surrender the thing and get rid of the debt (this is more common with deeply underwater real estate).
- Priority debt: This includes recent income taxes, domestic support arrears, government fines and penalties, and the like. It doesn’t get discharged and you still owe it.
- Student loans: Although unsecured and non-priority, Congress has given them special treatment. Most people should assume they’re not dischargeable.
Chapter 7 bankruptcy is “liquidation bankruptcy.” That means the Chapter 7 trustee is empowered to liquidate your assets and distribute them to your creditors. However, the law also provides for certain “exemptions” from liquidation. The law puts your assets into different categories and sets different limits on them. If your assets are worth less than those limits, they are exempted from being liquidated. Most people who file Chapter 7 bankruptcy cases have assets below those limits.
Chapter 7 bankruptcy is “means tested.” The chapter 7 means test is a backward-looking analysis that asks, based on your income for the past 6 months, did you make enough money that you can afford to repay your creditors? If so, then you can’t file a Chapter 7 bankruptcy case.
In sum, Chapter 7 bankruptcy is appropriate for people with modest income and modest assets, who want to get rid of dischargeable debts quickly, and move on with their lives. Whether your located in Oakland or San Francisco, Boeing Law Offices can help you with Chapter 7 bankruptcy.
The foregoing is intended for general informational purposes only and does not constitute legal advice.