Chapter 7 Bankruptcy

Chapter 7 Bankruptcy, also known as liquidation bankruptcy, is the most common type of bankruptcy in the U.S. In a Chapter 7 proceeding, a federal court turns assets over to a trustee who liquidates the assets to pay debts to creditors. Chapter 7 is more specifically defined under Title 11 of the U.S. Bankruptcy Code along with a variety of other bankruptcies.

All bankruptcies are federal court processes employed to discharge debt as a solution to insolvency for both individuals and businesses. Indebtedness arises from a variety of sources, which may include unemployment, underemployment, catastrophic health events, marital breakups, lack of financial training, poor financial planning and so on.

For the most part, Chapter 7 bankruptcy is elected when minimal assets, unsecured debt and credit card debt are involved. The trustee will determine which assets to liquidate and which are exempt, based on federal and state statutes governing liquidation. Statutes may vary from state to state regarding exemptions. Once the liquidation sale of assets occurs, the trustee transfers proceeds to creditors.

Examples of exempt assets:

• $50,000 equity in a residence (homestead exemption)
• $100,000 equity in a residence if husband and wife file jointly and are both on the deed
• $2,500 in cash, bank accounts or anticipated tax refunds if homestead exemption is not used
• Up to $2,400.00 equity in automobile
• Most pensions
• Household furnishings
• Clothing

Examples of non-exempt assets:

• IRS debt
• Alimony
• Child support
• Student loans from government organizations
• Fines and penalties for law violations, such as traffic tickets and citations
• Debts for personal injury or death caused by driving while intoxicated
• Any debts not listed when filing for bankruptcy, unless the creditor learns about your bankruptcy case.

For more information regarding new bankruptcy laws that have affected eligibility to file Chapter 7, please view our sections on Changes to Personal Bankruptcy, Means Test and New Bankruptcy Laws.

While other options are available to resolve financial difficulties, at times bankruptcy may be the most viable option. It is crucial for anyone considering bankruptcy to seek legal advice. The bankruptcy attorneys at Bailey & Galyen can assist you in evaluating your financial circumstances, by recommending the type of bankruptcy most appropriate in your situation and guiding you through the complexities of filing for bankruptcy.