What Is Chapter 7?
Chapter 7 Bankruptcy is generally the simplest and quickest form of bankruptcy. It is, therefore, the most frequently selected.
Chapter 7 is designed for individuals, corporations, and partnerships in financial difficulty that lack the ability to pay their existing debts. Under chapter 7, a trustee is authorized to take possession of all your nonexempt property, liquidate it for cash, and use the proceeds to pay creditors. If your case is typical of most consumer cases, however, all your assets will be exempt; and, the trustee will never take physical possession of any of your property.
The case is begun by filing the official petition, schedules, and a statement of financial affairs. Those forms list all your assets and all your debts, along with some recent financial history. Filing this petition triggers the “automatic stay,” which means your creditors must cease all attempts to collect.
You must attend one meeting, called a “341 Meeting.” At this meeting, the trustee will place you under oath and can ask you questions about assets and liabilities. The trustee will also give creditors the opportunity to question you on these subjects. But creditors rarely appear at these meetings.
After your “341 meeting,” your only responsibility will be to cooperate with the trustee in providing any information he or she requests. Creditors and the trustee have a 60day period after the 341 meeting in which to challenge your right to a discharge or the dischargeability of a particular debt. Such actions are relatively rare; which means that, in most cases, the court issues a discharge shortly after this 60day period.
Your discharge means that no creditor can hold you personally liable for any debt you owed on the day you filed bankruptcy. It does not, however, prevent a secured creditor from picking up its collateral if you fall behind on the payments. Moreover, there are some exceptions to this broad discharge provision such as, taxes, student loans, court fines, traffic tickets, DWI damages, and child or spousal support. If these nondischargeable debts are significant, you might consider filing under Chapter 13.