What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is a bankruptcy filing that allows an individual or business to liquidate assets to repay creditors. The filing is influenced by Chapter 7 of Title 11 in the U.S. Bankruptcy Code, which discusses the process of asset liquidation. Under this filing, a bankruptcy trustee is appointed to liquidate any nonexempt assets in order to repay creditors. After all of the assets are exhausted, the remaining debt is discharged. This means that the unsecured priority debt is paid first, and afterward, the secured debt and nonpriority unsecured debts are repaid or cleared.

Unsecured Debt and Secured Debt

What separates chapter 7 Bankruptcy from any other bankruptcy filings is the absolute priority rule. The absolute priority rule stipulates the order in which debts must be paid. This rule separates unsecured debt – debt that is not backed by collateral – into classes that prioritize payment. Unsecured debt can be things like credit card debt or a personal loan.

After the unsecured debt has been repaid, secured debts are paid next. Secured debts are any debts that are backed by collateral. For instance, a home loan is a secured debt. After the secured debts are paid, any nonpriority unsecured debts remaining from the liquidation of assets are paid.

Who Can File for Chapter 7 Bankruptcy?

Everyone does not qualify for a Chapter 7 Bankruptcy. Individuals who receive a gross income lower than their state’s median income can file for Chapter 7 Bankruptcy. If the gross income is higher than this median, individuals may still qualify if they do not have enough income left over to qualify for a Chapter 13 repayment plan after paying the monthly debts. Individuals are also prohibited from filing for Chapter 7 Bankruptcy if they obtained a discharge of their debts in a previous Chapter 7 Bankruptcy case within the last eight years.

How to Begin the Bankruptcy Process

The bankruptcy process begins once the debtor files a petition, along with other forms, with the bankruptcy court in their area. The forms will contain information about the individual’s property, current income, monthly living expenses, and debts. The individual will also fill out any property they believe the law allows them to keep through the process.

The Role of the Bankruptcy Trustee

In the Chapter 7 Bankruptcy, the court exercises its control through a court-appointed individual known as a bankruptcy trustee. The primary role of the bankruptcy trustee is to ensure that the debtor’s creditors are repaid as much as possible of what the debtor owes them. The trustee is paid based on the number of assets the trustee recovers for creditors. The trustee will examine the creditor’s paperwork, make sure that the paperwork is complete, and search for any nonexempt property to sell for the creditor’s benefit. Also, the trustee will search for any financial transactions within the previous year and determine whether those transactions can be undone to free up any assets for creditors.

Contact a Chapter 7 Bankruptcy Lawyer Today

The main goal of bankruptcy is to give debtors a financial “fresh start” from burdensome debts. Let The Law Offices of Emil Fleysher, P.A. assist you with your fresh start. Contact us online or call us today at 888-886-0020 to schedule a free consultation.

What is Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy comes from the 7th chapter of the bankruptcy code. It is also known as the “liquidation” bankruptcy. This is because the Trustee has to liquidate, or sell, all non-exempt property in order to repay your creditors. The majority of individuals who file for Chapter 7 bankruptcy get the keep their property. However, there are some states that are more charitable than others. The process normally takes about 3 months and requires only one meeting outside of court with the Trustee.


A bankruptcy judge selects the trustee, an official, to process your case. Bankruptcy has a law known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). It requires filers to take a “means” test. This test is to certify that filers who have “disposable” income are forced to file for Chapter 13 instead. However, most people who file for Chapter 7 do not have “disposable” income and therefore continue to file as such.

Consult a Nonprofit Credit Counseling Agency

Before filing, you will need to consult with a nonprofit credit counseling agency. The idea of this consultation with the credit counseling agency is to check if there is an attainable way, without falling deeper into debt, for you to manage your outstanding balances without filing for bankruptcy. After completing the counseling you can begin to file your case.

The first thing your attorney will do is file for a “Voluntary Petition”. It is the official form that asks the court to pardon your debts. There is a packet of forms that will need to be completed along with an extensive list of required documents. But, there is no need to fret. Your attorney will take care of the majority of the forms on your behalf. Once the filling of this is over, the court will put into place an “Order of Relief”; it will cause your creditors to cease the harassment calls, at least for some time.

During the time that your case is open, you cannot sell or give away any of your property. A notice will be sent advising you when and where the meeting of creditors is going to take place by your trustee. This is usually out of the courtroom and you will be asked a few questions, under oath. As long as you have answered everything truthfully and you have passed the means test, you should have a favorable outcome.

If you have questions about Foreclosure, Loan Modification, Bankruptcy, Short Sale, or other alternatives, please feel free to call my office at 888-886-0020. Or, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.