Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is a liquidation or "straight" bankruptcy. It is the quickest, easiest and least expensive type of bankruptcy method to discharge debts. Under Chapter 7 Bankruptcy, a trustee is appointed by the bankruptcy court to determine all of the non-exempt assets the debtor owns. All non-exempt assets are sold or liquidated by the trustee to pay the creditors. Priority taxes are paid first, secured debts second and finally unsecured debt. The types of non-exempt debts vary by state but generally can include a portion of the value of a home, certain tools of the trade and home furnishings, pensions, public benefits and insurance. Not all debts are considered dischargeable by filing Chapter 7 Bankruptcy. Non-dischargeable debts can include: alimony, child support, student loans and certain taxes.
Common complaints about the current bankruptcy process include the ease of filing Chapter 7 Bankruptcy which opponents contend has led to careless, reckless and irresponsible spending and extravagant purchases by consumers which has increased credit card debt. Congress answered this charge in 2005 by passing The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which enacted several significant changes to the U.S. Bankruptcy Code. Not the least of which was a two-part means test which determined if a filer could afford to pay 25% of their non-priority unsecured debt and if the filer's income was above their state's median income level. Failing the new "Means Test" eliminated the right of the debtor to file Chapter 7 Bankruptcy and instead required them to restructure and pay their debts by filing Chapter 13 Bankruptcy.
Debtors who qualify for Chapter 7 Bankruptcy can file a Chapter 7 Bankruptcy petition which automatically suspends certain debt collection efforts including foreclosure on "real" property, wage garnishments and filing liens. An "Automatic Stay" under Chapter 7 Bankruptcy may be lifted after 45 days or more if a creditor petitions the court to have it removed. Four to six months after filing Chapter 7 Bankruptcy the bankruptcy court generally discharges unsecured debts and the creditors are unable to continue their collection efforts.
