Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also called "liquidation bankruptcy", is ideal for individuals who do not have a sufficient income and whose debt is mainly unsecured. Most unsecured debts, such as credit cards and medical bills, can be discharged through Chapter 7, with the exception of some taxes, fines, and student loans.

Chapter 7 allows an individual to retain "exempt" property such as a home, cars, personal property, and retirement funds. It may also allow an individual to continue making scheduled payments on secured debts by liquidating assets deemed "non-exempt" and using the funds to repay creditors.

Eligibility for Chapter 7 Bankruptcy

You may qualify for Chapter 7 bankruptcy if:

  • Your debts total more than half your annual income
  • It would take five or more years to pay off your debt
  • You have little or no disposable income
  • Your monthly income is below the median income level in the state in which you reside

Steps for Filing Chapter 7 Bankruptcy

  1. Find a bankruptcy attorney.
  2. File a petition with the Bankruptcy Court. Financial statements detailing assets, liabilities, income, expenses, and overall financial standings must be provided. The filer will also be required to pay a case filing fee and miscellaneous administrative fee.
  3. Take the pre-bankruptcy credit counseling course. It is required for anyone filing under Chapter 7.
  4. Attend a meeting of the creditors. Your case will be reviewed by a court-appointed agent.

Exempt versus Non-Exempt Assets

When filing for Chapter 7 bankruptcy, property is divided into "exempt" and "non-exempt" assets. Exempt property is assets that are necessary for living and working, while non-exempt property are assets that fall outside the essentials.

Examples of items that are generally considered "exempt" assets:

  • Motor vehicles
  • Household furnishings and appliances
  • Pensions, 401(K)s, IRAs
  • A portion of equity in the debtor's home
  • Public assistance including welfare, social security, and unemployment compensation

Examples of items that are generally considered "non-exempt" assets (up to a certain value):

  • Cash, bank accounts, stocks and bonds
  • A second vehicle
  • A second or vacation home
  • Collections of valuable items
  • Expensive jewelry and clothing

Debts that remain after Chapter 7 filing

If you are filing for Chapter 7 bankruptcy, it is important to know that not all debts will be erased. The following are examples of debts that cannot be discharged under Chapter 7 bankruptcy:

  • Most student loans
  • Recent federal, state, and local taxes
  • Child support and alimony
  • Court fees and fines

Before filing for Chapter 7 bankruptcy, an individual should be aware of the drawbacks:

  • You will lose any luxury possessions.
  • It may be difficult to get a mortgage if you don't already have one.
  • It won't discharge your student loan or obligations to pay alimony and/or child support.

We're Here to Help

If you are considering filing for bankruptcy, contact our attorneys today. We have office locations throughout the Lehigh Valley, and we practice law in both Pennsylvania and New Jersey.

Call our main office at 908-454-3200, or you can reach us online with any questions you may have. We are here to help you regain financial stability.