Chapter 7 bankruptcy is a bankruptcy option that allows individuals to liquidate nonexempt assets to repay creditors and enjoy debt relief. Some property is considered exempt and is protected from the liquidation process. There are several categories of exempted property, including a wild card category, but exemptions are subject to certain limits and requirements.
A test referred to as the means test will be used to determine if the filing party qualifies for Chapter 7 bankruptcy. The test involves the filing party to compare income from the previous six months prior to filing to the median income in the state wherein the filing party resides. If the filing party's income is equal to, or below, the median income in the party's state, then the filing party qualifies to file for Chapter 7 bankruptcy. It is important to keep in mind that other personal bankruptcy options exist if the filing party does not qualify to file for Chapter 7 bankruptcy.
The Chapter 7 bankruptcy process begins when the filing party files a petitioner for bankruptcy. In addition to the petition, the filing party is required to provide a schedule of current assets and liabilities; a schedule of income and expenses; a statement of financial affairs and any executory contracts and unexpired leases. Tax return information is also required and additional requirements, including credit counseling, are required for consumers filing Chapter 7 bankruptcy. A bankruptcy trustee will be assigned and a meeting of the creditors will be scheduled.
At the completion of the Chapter 7 bankruptcy process, the filing party receives a debt discharge which relieves the filing party from further creditor action. In general, the debt discharge will be granted 60 to 90 days into the process. While 99 percent of Chapter 7 bankruptcy filings receive a debt discharge, it is important to keep in mind that the discharge can be subject to exceptions so it is important that the filing party carefully understand all of the details of the discharge. Following the debt discharge, the filing party will be able to enjoy the future without concerns related to those debts.
Source: United States Courts, "Liquidation Under The Bankruptcy Code," Accessed Sept. 2, 2014