Chapter 7

Chapter 72019-04-02T14:53:01+00:00

Having struggles keeping up with your loan and credit card payments? Filing Chapter 7 Bankruptcy can ease some of your debts.

What is Chapter 7 Bankruptcy?

Also called “straight bankruptcy” or “liquidation bankruptcy”, Chapter 7 Bankruptcy is a form of protection for debtors to eliminate most of their debts and start afresh with a clean slate. It begins by selling your assets and distributing those funds to your creditors, settling as much of your debt as possible before “discharging” or erasing your debts. While beneficial, it can pose drawbacks, such as a major and long-lasting hit to your credit score and loss of property.

Pros and Cons of Filing Bankruptcy

Deciding whether to file for Chapter 7 Bankruptcy or not is a massive decision that should not be taken lightly by anyone. You need to weigh the pros and cons carefully.


  • Easily understood and explained
  • Erase many of your financial obligations
  • Prevent lenders from taking any aggressive collection actions
  • The duration of completing the bankruptcy process may only take about 3 to 6 months


  • May damage your credit score for seven to ten years
  • The possibility of losing your property, including luxury items
  • Makes getting a mortgage more difficult
  • Does not offer relief from obligations to pay student loans, child support, and/or alimony

Nevertheless, Chapter 7 Bankruptcy proves to be a great aid in helping people relieve many of their debts. This is an important step to prevent yourself from become financially imprisoned.

Will You Qualify for Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is for consumers whose income is limited and do not have the full capacity to pay back all or most of their debts. You are qualified to file Chapter 7 Bankruptcy if your income is below the median level set by the state.

For consumers with an income of above the median, they will need to pass a “means test.” The means test is a process of evaluating the debts and income of a person for the last 6 months. You will be required to file under Chapter 13 Bankruptcy if you are believed to have the ability to repay at least some of your debts.

Who Will Not Qualify for Chapter 7 Bankruptcy?

If any of these requirements apply to you, then you are ineligible to file under Chapter 7 bankruptcy.

  • Failed the means of test or do not meet the set income requirements
  • Failure to attend credit counseling
  • Had debts discharged in the last 8 years
  • Had debts discharged in the last 6 years
  • Attempted to defraud the bankruptcy court or creditors

How to File

Before filing Chapter 7 Bankruptcy, there are essential factors or requirements you need to meet in order to ensure smooth filing process.

Before filing the initial paperwork, you must take a credit counseling course from an approved agency through the United States Trustee. Throughout the course, you will discover other options to make certain that filing for Chapter 7 Bankruptcy is your only and best option. You will get a certificate of completion as soon as you complete the course. This certificate will then be submitted when you file, along with a filing fee.

You will be required to provide information on expenses, income, sale of prior property, secured and unsecured debts, as well as a list of exempted (belongings that you are permitted to keep) and non-exempted property (belongings that can be taken by creditors to sell in order to pay off all or some of your debts).

Part of the filing process is deciding whether to return the property associated with the debt or reaffirm your debt at the end of the bankruptcy process. When we say reaffirming the debts, it means to resume liability for the debt.

You can choose to file for bankruptcy alone or with the presence of an attorney. The latter is a much better option especially if you have little knowledge about the process and want to know your responsibilities clearly and directly.

The Role of the Trustees

A trustee will be assigned to your bankruptcy case by the court once you file. The role of the trustee is to become the point of communication or contact throughout the entire course of your Chapter 7 Bankruptcy case. The trustee will also ensure that you complete and submit all the important documentation.

Moreover, the trustee is responsible for identifying how much the sale of your non-exempt property will produce. If the income is not adequately substantial, the trustee will likely abandon the property which allows you to keep it. But if the income is significant enough, it will be used towards paying off your creditors.