Wiping out debt you cannot pay
Wiping out unsecured debt
Chapter 7 is often called "liquidation" bankruptcy, but many filers keep everything they own because their property is protected by exemptions. At the end of the case, most unsecured debts are discharged, and creditors can no longer try to collect them.
Our attorneys practice in the U.S. Bankruptcy Courts for the Eastern, Southern and Northern Districts of New York.
Who qualifies
Chapter 7 is available to individuals whose income is below the median for their state and household size, or who pass the rest of the means test after allowed expenses. A person who received a Chapter 7 discharge in a case filed within the previous eight years cannot receive another one.
How a Chapter 7 case works
- Complete a credit counseling course and gather pay stubs, tax returns, bank statements and a list of debts.
- File the petition and schedules. The automatic stay begins.
- A trustee is appointed and reviews the case.
- Attend the meeting of creditors, usually about a month after filing.
- Complete the debtor education course.
- Receive the discharge, often a few months after filing when no one objects.
Property you can keep
Exemptions protect property up to set limits, such as equity in a home and a vehicle, retirement accounts, clothing and household goods. If you have property that is not protected, the trustee may sell it, which is why the choice of exemptions and the timing of the filing matter.
Debts that survive
Child support and alimony, most student loans, recent tax debts, most government fines and debts from fraud generally survive a Chapter 7 discharge. Secured debts such as car loans also stay tied to the collateral unless the loan is paid or the property is surrendered.
See also Chapter 13 and BankruptcyShark.com.
Frequently asked questions
How long does a Chapter 7 case take?
Many cases end with a discharge a few months after filing, when no creditor objects and no assets need to be sold.
Do I have to go to court?
Most people only attend the meeting of creditors with the trustee. Many of these meetings are now held by video or phone.
What if my income is too high?
You may still qualify after the expense calculations in the means test. If not, Chapter 13 may be the better option.