Chapter 7 Bankruptcy
Chapter 7 bankruptcy is straight bankruptcy, also known as liquidation, and is available to individuals, couples, corporations and partnerships. It generally lasts between three and five months. The term liquidation is used because a court appointed trustee gathers and sells the debtor’s non-exempt property and assets. The money from sales of those items goes to satisfy the debts. Any of the debtor’s exempt property can be kept. The trustee is in control of the non-exempt property and all money gained from the sale of that property.
To qualify for chapter 7, the debtor must undergo a means test based on their income over the previous six months. If the results of the means test indicate that the debtor is under the median income for a family of their size, they may file for chapter 7.
When it is time to file for chapter 7 bankruptcy, the debtor must file a petition with the court. The petition is simply an application asking the court to allow the debtor to be declared bankrupt. Included in the petition is statement of financial affairs, information about the debtor’s income, property, debts, and creditors. A list of creditors and their claims must also be provided along with lists of all property and detailed monthly expenses.
Once the petition is filed, automatic stay takes effect. Automatic stay prevents creditors from collecting debts. It is a way to protect the debtor during their bankruptcy.
After the petition is filed, the trustee holds the first meeting of creditors, also known as the 341 meeting. The debtor’s attendance at the 341 meeting is mandatory. While under oath, the trustee asks the debtor about their property, assets, and debts.
If the bankruptcy estate includes things such as a mortgage or a car loan, the debtor has the option to reaffirm those debts. Reaffirmation agreements must be filed with the court.
The chapter 7 bankruptcy does not stop a repossession or a foreclosure. It stays on the credit report for ten years after the date of filing.