Chapter 7 | Chapter 13 | Chapter 11

Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy can give a person or business the ability to get a fresh start through the permanent cancellation of your legal obligations to pay back many of your debts. Characteristics of Chapter 7 include:

• An individual is allowed to keep certain exempt property.
• Most liens, however (such as real estate mortgages and car loans), survive the bankruptcy.
• Any property the debtor owns which does not qualify as exempt can be used to fund the claims of creditors. Examples of non-exempt property include:
• cash,
• stocks,
• bonds,
• investments over a certain amount,
• a second car,
• a second home,
• family heirlooms over a certain value,
• collections such as paintings, coins, or stamps, and
• expensive trade or business equipment.

If most of the debtor’s estate consists of non-exempt property, filing a Chapter 7 bankruptcy may not be wise, as doing so will usually result in the loss of most of the debtor’s property. The debtor might want to consider a Chapter 13 “reorganization” bankruptcy instead, as it allows the debtor to keep most of the debtor’s exempt and non-exempt property, provided the debtor has a steady income and can continue to make payments under the Chapter 13 Plan.

However, under the new bankruptcy laws effective October 17, 2005, if your income is above the state's median income, you may not qualify for Chapter 7.