Chapter 7 bankruptcy, also called a “liquidation” bankruptcy,  allows for individuals to discharge most, but not all, of their debts while still keeping the majority of their personal belongings and other property. It is also the fastest and least expensive form of bankruptcy so individuals looking for relief under the Bankruptcy Code often hope to qualify for a Chapter 7 bankruptcy.

While a Chapter 7 bankruptcy is most desirable for many individuals, the main disadvantage is the potential loss of any non-exempt property. The Bankruptcy Code provides for a number of exemptions allowing petitioners to keep their property if its worth is under a certain monetary value. Any property that falls outside of these exemptions may be taken by the bankruptcy Trustee. The Trustee’s duty is to investigate and sell any non-exempt property and use the proceeds of the sale to pay back creditors of the petitioner. Examples of property that may be vulnerable are large sums of cash, real property having a large amount of equity, luxury items, and vehicles or equipment having a large amount of equity. Federal bankruptcy law requires individuals seeking relief under the Bankruptcy Code to declare all of their assets as well as all of their liabilities. It is important to consult with a bankruptcy attorney to discuss all of your assets in order to determine which, if any, may be vulnerable for seizure by the Trustee.

A Chapter 7 bankruptcy will discharge most, but not all, debts. It would not make sense for an individual to file for bankruptcy if their primary goal is to discharge debts that are categorized as nondischargeable. Some examples of nondischargeable debts are child support or spousal maintenance, student loans, and government fines or penalties. Debts owed to the IRS are generally considered nondischargeable as well; however, a qualified bankruptcy attorney will be able to assess whether special exceptions apply that would allow some or all of the IRS debt to be discharged. Some other debts may survive the bankruptcy if the creditor is able to successfully challenge its dischargeability. For example, if a creditor is able to prove that a debt was incurred on the basis of fraud, it can not be discharged in bankruptcy. Potential pitfalls like these should be discussed with a bankruptcy attorney to determine whether bankruptcy is the right solution for you.

The timeline of a straight-forward Chapter 7 bankruptcy is fairly expedited. The process starts with gathering information, completing the petition, and meeting the filing requirements. Approximately 30 days after a petition is filed, the petitioner must attend a 341 Creditor’s Hearing. This administrative hearing, held in front of a bankruptcy Trustee, gives the Trustee and Creditors an opportunity to gather additional information about the assets and liabilities of the petitioner. If the Trustee is satisfied with the information provided, a Discharge Order will be granted approximately 60 days after the 341 Creditor’s Hearing.

Please call today to schedule a free consultation to determine whether a Chapter 7 bankruptcy is the best solution for you.


Please note that these web pages are for information only. They do not constitute legal advice. These pages do not constitute, nor do they create, an attorney-client relationship between the law office of Luce, Kenney & Associates, LLC, or Brittany Cline, Esq. and any receiver.