Chapter 7 Bankruptcy


A Chapter 7 bankruptcy, which is commonly referred to as straight bankruptcy or a liquidation bankruptcy, allows you to eliminate most of your debts entirely. All of your unsecured debt (credit cards, personal loans, medical bills) will typically be eliminated or dramatically reduced using this type of bankruptcy. Secured debts with equity, such as a mortgage or car loan may also be eliminated, but if that occurs, the asset (house or car) will need to be sold to repay as much of the debt as possible.

Who is Eligible?

Not everyone will be able to qualify for a Chapter 7 bankruptcy. When seeking this type of bankruptcy, the courts will look at a number of factors that could disqualify your eligibility. The following are the major considerations that will be looked at:

  • Previous Bankruptcy – Chapter 7 bankruptcy can only be filed once every eight years.
  • Income – If you have a high income, you won’t qualify for this type of bankruptcy.
  • Income to Expense Ratio – If your total expenses don’t make up a high enough percentage of your income, you can’t file for Chapter 7.
  • Chapter 13 – If the courts determine that a Chapter 13 repayment plan is possible and wouldn’t cause you significant financial burden, they won’t allow a Chapter 7 to proceed.

The best way to determine whether or not you could qualify for a Chapter 7 bankruptcy is to speak with an experienced bankruptcy attorney who can review the specifics of your case.

The Court Will Control Your Financial Affairs

One thing that many people worry about when filing for a Chapter 7 bankruptcy is the fact that the court will have a significant amount of control over their financial affairs throughout the process. This is a temporary limitation, and any money or property you acquire after the bankruptcy has been completed won’t be impacted by this. The courts have control over the assets to help ensure they are used to repay creditors as much of what they are owed as possible, while at the same time helping you to emerge from bankruptcy in as strong a position as possible.

Discharge from Bankruptcy

Once your case has been completed, it will be discharged from the bankruptcy court. At this time, all of your eligible debts will have been eliminated and forgiven out, so you are no longer responsible for paying them. Some debts, such as child support, most taxes, and most student loans, are not bankrupt-able, so you will need to start or continue paying them right away. Other than these remaining debts, and any secured debts you renewed and reaffirmed, however, you will have a clean slate on which to start building a strong financial future.

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