Chapter 7 consumer bankruptcy, often also called debt liquidation, is a legal debt relief process designed for individuals experiencing financial difficulties that do not have the ability to repay them. This type of bankruptcy is often used by people that are unable to pay unsecured debts, meaning debts that do not have attached collateral pledged for the repayment of the same. Such debts may include both current and/or collection accounts. Some examples of unsecured debts include credit card bills, bank and signature loans, medical debts, utility and phone bills, deficiency balances owed on repossessed vehicles or foreclosed homes and most installment loans.
In order to qualify to file a Chapter 7 bankruptcy, individuals must provide gross income information that is then compared with a “median income test” that has been developed by the government. If a person’s gross income falls below the government’s median household income guidelines, a Chapter 7 bankruptcy may be an option to obtain a discharge of most unsecured debts.
In a Chapter 7 bankruptcy, an individual may claim certain property and assets as exempt under governing State or Federal guidelines. Some examples of assets that are often protected in a Chapter 7 bankruptcy include most household items and clothing, a limited amount of cash on hand or money in a bank account depending on the exemptions used, the fair market value of a vehicle for each filing individual up to an established maximum exemption amount, a defined amount of equity held in a homestead and assets held in a 401K, IRA or other qualified retirement account.
Some debts are not dischargeable under the law. Therefore, individuals may file a Chapter 7 case and receive a general discharge but will still remain liable and responsible for any debts that the government has defined as nondischargeable according to the applicable bankruptcy laws. These debts include taxes and student loans, child support obligations and most criminal fines and restitution.
The process of filing a Chapter 7 bankruptcy takes approximately 90-120 days from the date that the case is filed until the Chapter 7 discharge order is entered by the Court. Anyone filing a Chapter 7 bankruptcy case must receive two required courses during the bankruptcy process and attend a hearing in the presence of the bankruptcy trustee assigned by the government to their case in order to receive a Chapter 7 discharge.