Chapter 7 is the most common type of bankruptcy; it is sometimes referred to as "fresh start bankruptcy," or "straight bankruptcy." The basic purpose of Chapter 7 is to provide you with a fresh start by wiping out all qualifying debts including credit cards, medical bills, repossession deficiencies, law suits as well as a variety of other debts. In chapter 7 there is no repayment required for most unsecured debts, your debts are wiped out completely and permanently. The entire process usually takes less than 4 months to complete. After the bankruptcy is over, the consumer may choose to selectively pay back debts, such as debts to family members, however repayment is not legally required.
In many cases, a person may keep their home or car (secured debt), provided that they continue to make current payments and are up to date on the loan.
Chapter 7 eliminates:
- Credit Card debts
- Medical debts
- Personal loan debts
- Lawsuit debts
- Judgments - Unless fraud or criminal related
- Deficiency debts on repossessed autos and foreclosures
- Personal Injury Debts - except driving while intoxicated and criminal injury.
- Certain other exceptions may apply.
Chapter 7 does not eliminate student loans except in undue hardship cases; debts from certain types of taxes; alimony, maintenance, or support payments; fines, penalties and criminal restitutions; debts incurred through fraudulent conduct; debts incurred through intentional injury to person or property; or debts from personal injuries caused by driving while intoxicated.
In order to have a successful Chapter 7 Bankruptcy certain requirements must be met. A person must not have filed a previous Chapter 7 Bankruptcy within the last 8 years. They must not have any major assets such as a house with a substantial amount of equity, or own a brand new car that is paid in full, or make a considerable amount of income unless they also have correspondingly high expenses.
As long as none of these conditions are present a person will have the right to eliminate credit card and other unsecured debt and still be able to keep their house and car as if nothing ever happened.
Avoiding Problems when Filing Chapter 7
Because of the many nuances in Chapter 7 law, the specific terms of any filing will only become clear once the facts of a particular situation are known. However, if you are considering filing Chapter 7, there are a few things you should not do:
- Do not make any more charges or take any cash advances on any of your credit cards.
- Do not make any property transfers.
- Do not pay any unsecured creditor (credit cards, personal loans, etc.) more than $600 within 90 days prior to filing. That is called a "preference" and will make it more difficult for you to get a discharge.
The Filing Process
With a Chapter 7 bankruptcy filing, there are typically no bankruptcy court appearances necessary. You need only to appear (with your attorney) for a very informal meeting that takes place about five weeks after your case is filed. This meeting is referred to as a Section 341 Meeting. The purpose of this meeting is for a court-appointed trustee to ask you a few very brief questions to determine whether you have any non-exempt assets. Your creditors are given notice of this meeting and are permitted to question you, but usually they are not present. The meeting generally takes less than five minutes. After the meeting, all you have to do is wait about two-and-a-half months for your discharge papers to arrive in the mail.
You may want to consider Chapter 7 if:
- You have little property except for the basic necessities like furniture and clothing
- You have little or no money left after paying basic expenses each month—or you’re not even meeting basic expenses
Advantages of Chapter 7:
- Most unsecured debts can be discharged (completely eliminated)
- The process moves quickly—you may receive your discharge in just a few months
- Creditors can’t contact you while the automatic stay is in effect—or after debts are discharged.
Who can file under Chapter 7?
- Debtors who have qualified under the “ means test” and completed a required pre-filing session with a credit counselor may file for Chapter 7 bankruptcy protection.