Chapter 7 Liquidation

Chapter 7, also known as liquidation, is generally the simplest and quickest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. A trustee appointed by the court gathers and sells your non-exempt property (property types not on a certain state or federal list) and uses the proceeds from the sale to pay your creditors. This may sound scarier than it is—for many debtors, there is no non-exempt property to sell.

Chapter 7 typically works best for those who:

  • Have lots of unsecured debt (for example, credit cards, medical bills, utility bills, unsecured personal loans [but usually not student loans] and payday loans)

  • Do not own much property

  • Do not have much income. In order to qualify for Chapter 7 bankruptcy, you must meet certain income requirements. We can look at your finances and the bankruptcy laws to determine whether you qualify

If this does not sound like the bankruptcy type for you, look at Chapter 13: Reorganization.

What happens when I file a chapter 7 bankruptcy case?

A bankruptcy case starts with the filing with the bankruptcy court of certain documents disclosing your assets, debts, income and expenses, that we will prepare for you. Then your creditors cannot collect on your debts because of what is called an “automatic stay.” The stay is meant to protect your property and to give you a break from litigation. In other words, no more harassing phone calls from creditors.

If there is property that is not exempt (as defined by the Bankruptcy Code), then the trustee may take control of it. From the sale of this property, the trustee pays the expenses of the administration of the case and then pays any remaining money to creditors with allowed claims, according to the priority of the claims. But any wages you earn after you file the case are yours.

Usually between 20 and 40 days after you file your petition, the trustee will hold the “first meeting of creditors” (also called a “341” meeting). You must be present for that meeting. The trustee will ask you questions under oath about your property and debts. Creditors can also question you on those subjects.

Generally, the only responsibilities you have with respect to the bankruptcy case after the 341 meeting is to cooperate with the trustee in providing any additional information. Creditors have 60 days after the 341 meeting to convince the bankruptcy court you should not be allowed to get rid of your debts. If no creditors file a suit to stop you from getting out from under your debts within 60 days of the 341 meeting, the court will enter an order granting the “discharge” of all dischargeable debts that existed on the date the case was filed.

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