Chapter 7 bankruptcy is the most commonly used type of bankruptcy.  The purpose of a Chapter 7 bankruptcy is to give the debtor a fresh start by letting him keep enough property to restart his life free from overwhelming debt, and to distribute any excess property equitably among the debtor’s creditors.  A Chapter 7 bankruptcy is known as a liquidation, because it involves the gathering up of the debtor’s non-exempt assets, and their sale, or liquidation, to pay the creditors.  While the sale of one’s assets may sound scary, in fact in most consumer bankruptcy situations, most, if not all, of the debtor’s property will be exempt, and therefore the debtor will be able to keep it.  One important exception is that the debtor can only keep property that secures a voluntary debt (e.g. a house with a mortgage) if the debtor continues to pay the debt (i.e. the mortgage).  If the debtor is delinquent on a secured debt like a mortgage, but wants to keep the property, a Chapter 7 bankruptcy is likely not the right option, and a Chapter 13 bankruptcy, or  non-bankruptcy debt restructuring, may be a better alternative.  In addition, if the debtor has significant non-exempt property, then Chapter 7 is likely not the right debt relief procedure for that particular debtor, and other alternatives must be considered.

Chapter 7 Process

A Chapter 7 bankruptcy is initiated by the filing of a petition with the Bankruptcy court, accompanies by a filing fee of $299 and statements listing information about the debtor’s financial affairs, including the debtor’s assets, liabilities (debts), income, and expenses.  The filing of the petition automatically stops most collection actions against the debtor and the debtor’s property.  Twenty to forty days after the filing of the petition, the debtor will attend a meeting of creditors, where the case trustee and the creditors will have an opportunity to ask the debtor questions.  However, in most cases the creditors do not attend the meeting, and only the trustee is present and asks question (click here for a list of questions the trustee may ask).  Normally, the meeting of creditors is the only time the debtor in a Chapter 7 case will have to come to court, and the debtor will never have to appear before a judge.  If any property is to be distributed to creditors, the trustee will do this subsequent to the meeting of creditors.  Once payments to creditors are completed, the debtor will receive a discharge, releasing the debtor from personal liability for most debts and preventing the creditors owed those debts from taking any collection actions against the debtor at any time in the future.  Absent unusual circumstances, the entire Chapter 7 process takes approximately four to six months.

Chapter 7 Pros

•    speedy fresh financial start
•    no repayment plans –most unsecured debts are discharged
•    debtor does not need regular income

Chapter 7 Cons

•    is not designed to deal with delinquencies on secured debt (e.g. mortgage)
•    individuals must qualify for Chapter 7 based on income

To learn whether Chapter 7 bankruptcy is advisable in your situation, please contact a Tucson Chapter 7 bankruptcy attorney at Yusufov Law Firm PLLC for a free consultation.