What is Chapter 7?

Drowning-in-debt

What is Chapter 7?

Chapter 7 bankruptcy is sometimes referred to as a “liquidation” or “straight” bankruptcy. It is generally the quickest form of bankruptcy, taking three-to-four months to complete from the date of filing until discharge (forgiveness of debt). Chapter 7 bankruptcy eliminates most unsecured debts, including credit cards, medical bills and personal loans.  You may be able to discharge debts owed for older taxes.  Chapter 7 also discharges most secured debts such as car loans and home equity lines of credit (HELOC). Chapter 7 can also stop wage garnishments, and stop lawsuits filed by creditors through an automatic stay.

What happens once I file?

To better understand Chapter 7, pretend you are filing today.  We start with a look-back period.  We look back at your actions before filing bankruptcy, such as maxing out credit cards, transferring titles to property, or borrowing money and repaying it to family members.  If the look-back period is clean, we can proceed with preparing to file your case.  If not, we may have to wait or take actions to deal with any complications that arise prior to filing.

Upon filing your case, a few things happen.  First, an automatic stay is triggered.  This stay stops most collections, lawsuits, wage garnishments and creditors from otherwise contacting you.  Chapter 7 also temporarily stops foreclosure.

Second, once you file, your assets automatically get placed into the bankruptcy estate. Understanding your assets and their value is critical before filing Chapter 7. The Chapter 7 trustee controls your property in this bankruptcy estate until he or she abandons your property and your case is closed. Depending on the situation, it may be possible to keep your car and home provided your payments are current, and the equity does not exceed the exemptions. We can usually “exempt” and protect most if not all of your property, meaning you get to keep everything even though you get rid of your debts.

Third, your case is assigned to a Chapter 7 trustee.  A hearing called your 341 meeting of creditors will be scheduled approximately 30 days after you file.  At this hearing you will meet with the trustee.  The trustee will inquire into the representations made in your petition, including income, assets and debts.

From the date of your 341 meeting of creditors, a 60-day window of time is triggered.  If at the end of the 60 days no party objects, your debts that are dischargeable are forgiven by order of the bankruptcy court, meaning you no longer have to pay for them.

Getting back your property and getting a discharge of your debts are the two critical components of Chapter 7.  They are separate events that occur independently from each other.  The goal in Chapter 7 bankruptcy is therefore to protect and preserve your assets, and to discharge as much debt as possible.

How long does Chapter 7 take?

From the date of filing until discharge (forgiveness of debt) usually takes about 3 – 4 months. Chapter 7 is probably one of the quickest ways to get out of debt once and for all.

What debts are discharged in Chapter 7?

Most debts are discharged in Chapter 7. Common debts includes:

  • Credit cards
  • Personal loans
  • Medical debts
  • Leases
Certain debts are not discharged in Chapter 7. Common examples includes:
  • Student loans
  • Recent taxes (older taxes may be dischargeable in bankruptcy)
  • Child support and alimony payments

Please call JC Law Group PC at 415-963-4004 or complete the online consultation request to discuss your individual circumstances.

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