Chapter 7 bankruptcy is a liquidation proceeding that allows debtors to erase their unsecured debts to creditors and “start fresh.” Liquidation involves the sale of your non-exempt assets to pay what is owed to your creditors.
Chapter 7 is available to both individuals and businesses. However, it is more common for individual debtors who have unsecured debts such as credit cards and medical bills. To determine eligibility for Chapter 7, a “Means Test” must be satisfied first. The Means Test is defined in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or “BAPCPA” as a qualification standard for Chapter 7. Essentially, to qualify under the Means Test, it must be shown that you do not have enough income left to pay your creditors after you cover your cost of living.
Filing a Chapter 7 petition for bankruptcy creates an immediate injunction, called the “automatic stay.” In essence it stops all forms of creditor collection including foreclosures, lawsuits, phone calls and letters to collect debts, wage garnishments, auto repossessions and more. It is designed to merge all the claims against you into one proceeding to be handled in bankruptcy court.
A Chapter 7 bankruptcy can generally be completed within four to six months after the date of filing. Upon completion, a debtor will receive a discharge of debts, except for certain debts prohibited from discharge by the Bankruptcy Code such as alimony, child support, income taxes and student loans. The debtor will also receive a discharge injunction, which acts as a court order that prohibits creditors from ever seeking to collect a debt that was discharged in the case. The bankruptcy discharge provides debtors with a fresh start, allowing them the opportunity to establish new credit.
With the proper case planning and analysis, many debtors can retain all or most of their property. Bankruptcy law assists debtors by providing a generous amount of property exemptions. Exempting property means that you keep important assets necessary for living such as your home, car, or tools of trade, as well as items of personal or sentimental value.
If you are struggling to repay substantial debts and want to erase medical bills, repossession deficiencies, credit card debt, finance company loans or a deficiency from mortgage foreclosure, then Chapter 7 bankruptcy is an option. Chapter 7 bankruptcy can stop harassing phone calls, garnishment of wages, civil lawsuits, and bank levies and attachments.