Chapter 7

Chapter 7 Bankruptcy: Liquidation

Chapter 7 Bankruptcy quickly eliminates existing debts, it takes about 90 days from filing to discharge. The Bankruptcy trustee sells certain assets, hence the name liquidation. The trustee pays unsecured creditors with the money collected.  However, Chapter 7 often allows a debtor to keep all ordinary and necessary assets called exempt assets. They include things such as a portion of wages, clothes, furniture, a vehicle, retirement savings, and other items. The bankruptcy code allows debtors to keep and use exempt assets as part of the fresh start. The bankruptcy trustee may not use exempt assets to pay creditors.

The Bankruptcy laws changed in 2005 adding requirements for debtors seeking to file Chapter 7. These additions included:
1. Bankruptcy candidates now take a debt counseling class before filing;
2. The law imposes an income analysis called a means test. This looks at the Size of the Household,  its income and necessary expenses. Then it compares it to the averages for households in the debtor’s region of the country; and
3. A financial management course taken shortly after the first meeting with the bankruptcy trustee and creditors.
If the debtor fails the means test creditors ask the court to dismiss the case. The Court decides whether to dismiss such a chapter 7 bankruptcy case.

What The Debtor Can Keep

In all chapter 7 bankruptcies a debtor may claim the trustee may not use certain property to pay off creditors. Each state has its own set of bankruptcy exemptions.  The Bankruptcy Code also lists exemptions available for use in many states. In Chapter 7 bankruptcy the trustee has the right to sell nonexempt property to pay creditors. Thus the term liquidation, from the liquidation or sale of assets. Creditors receive only that money, no more. At the end of the bankruptcy case the debtor owes nothing. Sometimes though, the debtor chooses to reaffirm a  a particular debt.  This may happen with secured creditors to prevent them from selling collateral, like a car.  The bankruptcy court must approve the reaffirmation at a special reaffirmation hearing.

Debts Not Discharged

Certain kinds of improper conduct may cause the court to deny the discharge. Lying on the bankruptcy petition is very damaging.

Other debts not discharged include certain taxes, student loans,and  loans from retirement  accounts. Also, domestic support obligations, divorce settlement 0bligations and orders.  Furthermore, courts do not discharge for fines, and penalties, or forfeitures, and restitution orders in criminal cases. Additionally, in some instances no discharge for debts not properly listed in the bankruptcy petition.  Also, bankruptcy does not discharge debts for death or personal injury caused operating a vehicles while intoxicated. Finally, when a debt arose from fraud, breach of fiduciary duty, theft, or willful and malicious injury. In this case the creditor must prove this occurred.