Answering Common Questions About Chapter 7 Bankruptcy

Considering bankruptcy is a difficult decision and one that must come only after you’ve explored your options. Still, there are different types of bankruptcies, each with different terms and outcomes for a variety of financial situations. Chapter 7 bankruptcy is one of the most common types, with many ultimately choosing it over others.

But like all other situations, it’s important to understand what this type of bankruptcy entails, especially when compared to other forms of bankruptcy. Below I’ve identified some of the most common questions I’m asked by my Michigan clients. These can help you get a clearer understanding of your options, and how I can help.

Exploring Chapter 7 Bankruptcy

Question #1: What is Chapter 7 bankruptcy?

Under federal law, Chapter 7 gives the debtor the opportunity to find relief from creditors seeking repayment for those debts. It means that the debtor surrenders their nonexempt property in the event that they have property to surrender. The property goes to a trustee who is responsible for ensuring that property results in cash paid to creditors to account for debt.

However, debtors are entitled to keep a specific amount of property, which is called an exemption. Exemptions are not included in what the debtor turns over to the trustee and, in turn, to creditors. Property that is exempt cannot be seized during the bankruptcy process.

In some cases, however, there are no assets to be liquidated. In this situation, the debtor pays a filing fee and is eligible for discharge while adhering to the court’s bankruptcy rules. In most cases, a Chapter 7 debtor will not appear before a bankruptcy judge during a confirmation hearing.

Question #2: Who can file for Chapter 7 bankruptcy?

Federal law states that any person who qualifies for, lives in, conducts business in, or owns property in the U.S. may file. However, the debtor must qualify under the means test before the case can be heard. The means test evaluates a person’s current monthly income and determines if it exceeds the median annual income. If so, they are unlikely able to file Chapter 7. However, one exception is that anyone who purposefully dismissed another bankruptcy case in the past 180 days is not eligible for Chapter 7 filings.

Question #3: What is a discharge?

Through a court order, a discharge relieves a debtor from all dischargeable debts. This order prohibits creditors from any attempts to collect these debts effective from the moment the court orders the debtor’s release.

However, some types of debts are not eligible for discharge, like alimony and child support. Other debts include anything related to fraud surrounding cash, credit, services, or property. Intentional injury, student loans, tax debts, and some fines and penalties are also not dischargeable.

Know Your Rights for Chapter 7 Bankruptcy

Getting a clear understanding of your bankruptcy options can be daunting, but it doesn’t have to be. James L. Gutting can help you understand your options and ensure you are treated fairly during the process. Reach out to us today to learn more.