Chapter 7 Frequently Asked Questions

What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy is a liquidation proceeding of non-exempt property overseen by a trustee to pay off debt. The proceeds from the liquidation are converted to cash and are distributed to creditors. The debtor receives a discharge of all dischargeable debts, often referred to as a “fresh start.” One of the purposes of this type of bankruptcy is to wipe out debts of those who are hopelessly in debt.

What are the most frequent underlying reasons for filing Chapter 7?

In 2005, a Harvard Study showed that medical bills caused 50% of U.S. bankruptcies, and estimated that 2 million Americans are affected by medical bankruptcies every year. Other common causes of bankruptcy include overextended credit, marital problems and large unexpected expenses.

Does filing Chapter 7 keep creditors away?

Yes. Once a bankruptcy petition is filed, an automatic stay goes into affect and creditors listed in the petition must cease all actions against you – lawsuits, garnishment of wages, debt collection phone calls, repossession of property, foreclosure on real estate property and other payment demands. Unless the creditor succeeds in having the stay lifted, the automatic stay remains in effect throughout the duration of the bankruptcy.

What debts are discharged in Chapter 7 bankruptcy?

Generally, debts discharged include medical bills, loans, credit card debt, cash advances, and other judgments. For your own protection against losing valuable assets, it is important to seek legal advice to ensure you know which debts are dischargeable and which are not.

What debts are not discharged through Chapter 7?

Typically, alimony, child support, student loans, taxes, criminal fines, debts related to drunk driving, debts not listed in the bankruptcy petition and certain other debts may not be discharged. Your attorney can better advise you regarding which debts will not be discharged based on your individual situation and certain exemptions under your state’s law.

What information must be provided when filing Chapter 7?

You must provide a wide variety of information regarding your financial status:

• Pensions
• IRAs
• Stocks
• Furs
• Jewelry
• Cars
• Lawsuits
• Bank Accounts
• Real estate ownership facts
• Cash Value of Insurance Policies
• Household goods and furnishings
• Payments made to creditors within 60 days of filing
• List of names and addresses of all creditors (account numbers if possible)
• Unsecured claims (medical bills, credit cards, certain loans)
• Secured claims (mortgages, liens, security interests, judgments)
• Unsecured priority claims (alimony, taxes)
• Unexpired contracts and leases (apartment leases, auto leases)

What are the advantages of filing Chapter 7?

If you do not own a lot of assets, Chapter 7 can wipe out your debt without a lot of loss. There is no minimum debt required to file for Chapter 7 bankruptcy. Creditors will no longer have a claim on you. Once your debt is discharged, your possessions obtained after discharge and your wages are clear of any claim. The Chapter 7 process is fast, and your debts are discharged quickly, in as little as four to six months.

At the Texas law firm of Bailey & Galyen, our attorneys can answer your questions and offer legal explanations for aspects of bankruptcy that are difficult to understand or may cause confusion.