Home: Bankruptcy: Chapter 7

Chapter 7 Bankruptcy is otherwise known as "straight bankruptcy". The debtor is allowed to retain all assets that are considered exempt assets. Filing Chapter 7 Bankruptcy may require court liquidation of non-exempt personal property. This means that the trustee may sell unprotected personal property to repay creditors. Non-exempt assets could include collateral such as a house, car, or land. However, limitations vary from state to state in regards to what personal property may be exempted. In most cases, Chapter 7 Bankruptcy provides enough protection for most assets.

Chapter 7 Bankruptcy is best for debtors with excessive unsecured debt because it completely eliminates the legal liability and responsibility for repaying the unsecured debt. However, if the debtor is behind on secured debt which involves some form of collateral such as a home or car, it will not eliminate their obligation to repay the debt nor the amount delinquent. For Chapter 7 bankruptcy, the time frame for filing to receipt of discharge can take anywhere from 2 to 5 months.

Discharge from Chapter 7 Bankruptcy is when the bankruptcy court officially ends your case and dismisses you from the legal liability to repay the debts. Only debts that are listed on the bankruptcy petition forms and existed on the date that the bankruptcy was filed may be discharged.

Below are debts that can not be discharged through Chapter 7 Bankruptcy

• Credit card, personal loans, and installment purchases made within 40 days of filing

• Debt resulting from fraud

• Debts resulting from drinking and driving or reckless driving

• Fines from traffic tickets or debts that resulted from criminal negligence

• Debts from willful or malicious injury to another person or their property

• Alimony

• Child Support

• Student Loans (*)

Income Taxes (*)

*Generally speaking, for taxes to be discharged, the following criteria must be met:

• A tax return filed for the year in question was filed on time, or if not, then it was filed at least two years before the bankruptcy.

• The tax is over three years old

• The tax was assessed more than eight months before the bankruptcy was filed.

• The debtor did not willfully evade the tax

*In 1998 the law changed with regard to discharge of student loans. Prior bankruptcy law allowed student loans to be discharged once they were 7 years or older from the day they were first due. Currently, student loans cannot be discharged unless the debtor passes an undue hardship test. The debtor has to prove that they made good faith efforts to repay the loan and prove that they cannot maintain a minimal standard of living if you were forced to repay the loan(s). The guidelines of a "minimal standard of living" are very rigid and discharge of student loans under Chapter 7 is uncommon.

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