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What's a Chapter 7 Bankruptcy Case?

What's a Chapter 7 Bankruptcy Case?

Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts. Debtors with primarily consumer debts are subject to a "means test" designed to determine whether the case should be permitted to proceed under chapter 7. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting that the court dismiss your case as an abusive filing. It is up to the court to decide whether the case should be dismissed.  If your case is the result of a business failure, your Chapter 7 case generally will not be considered a consumer case and is not subject to the means test.

Under Chapter 7, you may claim much of your property as "exempt" under governing law. Exempt property refers to property that is not subject to creditors' claims and may be retained by the Debtor.  A trustee may have the right to take possession of and sell the remaining property that is not exempt and use the sale proceeds to pay your creditors. Consult with an attorney to determine what property you own would be considered exempt and retained or non-exempt and subject to liquidation.

The purpose of filing a Chapter 7 case is to obtain a discharge of your existing debts. A discharge is a permanent injuntion against your creditors prohibiting any future action to collect a debt.  If, however, you are found to have committed certain kinds of improper conduct described in the Bankruptcy Code, the court may deny your discharge and, if it does, the purpose for which you filed the bankruptcy petition will be defeated. Full disclosure of you and your family's income, expenses, property and creditors' claims, as well as certain information concerning your financial affairs preceding the bankruptcy filing is mandatory. 

Even if you receive a general discharge, some particular debts are not discharged under the law. Therefore, you may still be responsible for most taxes and student loans; debts incurred to pay non-dischargeable taxes; domestic support and property settlement obligations; most fines, penalties, forfeitures, and criminal restitution obligations; certain debts which are not properly listed in your bankruptcy papers; and debts for death or personal injury caused by operating a motor vehicle, vessel, or aircraft while intoxicated from alcohol or drugs. Also, if a creditor can prove that a debt arose from fraud, breach of fiduciary duty, or theft, or from a willful and malicious injury, the bankruptcy court may determine that the debt is not discharged.

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