Chapter 7 is the most common form of bankruptcy. Individual debtors who are unable to meet their bills and need a fresh start can often benefit from Chapter 7 bankruptcy. It may also be used by businesses that wish to liquidate and terminate their operations.
Although changes to the Bankruptcy Code have made the process more complicated, most debtors can still eliminate debts through Chapter 7. In most cases, you can keep your personal property, including your car. In many instances, debtors can keep their homes.
The Chapter 7 Process
To determine if Chapter 7 is right for your situation, your attorney will review your financial information. If Chapter 7 is appropriate, the case begins with preparation and filing of a bankruptcy petition, schedules, and associated documents. In most cases, you do not have to go to court. However, you will have to attend a short hearing held by the Chapter 7 bankruptcy trustee called a meeting of creditors. At the meeting, the trustee will review your petition and schedules and ask some questions. About three months after the meeting, you will receive a discharge of your debts signed by the judge. From the date of filing to discharge, most Chapter 7 cases take about four months.
Debts You May Eliminate Under Chapter 7
With a few exceptions, Chapter 7 eliminates debts, including:
- Credit card debts
- Medical bills
- Personal Loans
- Civil judgments from lawsuits (including personal injury)
- Personal loans
- Some taxes, including back federal, state, and local income taxes
- Deficiency judgments and debts on foreclosured property and repossessed vehicles
- Most other unsecured debts
- Secured debts, if you surrender the property securing the debt
Chapter 7 stops collections, lawsuits, bank levies, and garnishments.
Debts Generally Not Dischargeable in Bankruptcy
Some debts may not be discharged in bankruptcy, such as
- Student loans (unless you can show undue hardship)
- Alimony and child support
- Damages awarded for personal injury to someone else resulting from DUI
- Criminal fines, restitution, and court fees
- Taxes that do not meet the dischargeability rules.
Property You Can Keep Under Chapter 7
Up to a certain limit, most items of personal property are exempt, which means that the debtor can keep them. In over 90 percent of consumer bankruptcy cases, debtors keep all of their personal property. Moreover, many debtors can keep their home, if they are current on their payments and do not have too much equity. Exempt property can include:
- Equity in the debtor’s home
- Motor vehicles
- Household goods and furnishings
- Household appliances
- Pensions, including money in 401k plans
- Tools of the debtor’s trade or profession
- A portion of unpaid but earned wages
- Public benefits, including public assistance, Social Security, and unemployment compensation
- Damages awarded for personal injury
Chapter 7 is not the right choice in every case, and there are alternatives. Other options include Chapter 13, debt negotiation/debt settlement, mortgage foreclosure defense, and mortgage modification. If you would like to speak to an experienced Pennsylvania bankruptcy attorney about the options available to you, call Dan Mueller at (215) 248-0989 or use our contact form.