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What Is Chapter 7 Bankruptcy?

Bankruptcy is the declaration that the amount that you owe to creditors is more than your income and assets. By filing for bankruptcy, you are stating that you have gotten so far in debt that you will not be able to get out without help from the bankruptcy court.There are several different types of bankruptcies. The most common for individuals are Chapter 7 and Chapter 13. A Chapter 7 bankruptcy is different from a Chapter 13 in that the debtor's assets are liquidated to satisfy the debt. The debtor is not responsible for a repayment plan or for repaying the debts after the court case is over.

Process of a Chapter 7 Bankruptcy 


The first step in moving forward with a Chapter 7 bankruptcy is to file a petition with the court letting them know that you cannot afford to pay back your debts. The court will use this petition to help determine if you qualify for Chapter 7 bankruptcy and what will need to be done to continue.

Assets and Liabilities

The next piece of paperwork you will need to file will be a form outlining your assets and liabilities. Your assets will be anything that you own as well as any money you have in the bank. Your liabilities will be your debts and what you owe to other people. Your assets and liabilities together determine your total financial picture.

Income and Expenses

Next, you will need to tell the court about your income and expenses. This is where you will make a list of any money that is coming in as well as the money that is going out. Your income will include money you make at your job as well as other types of income. Your attorney can help you understand which income should be counted and which should not.Your expenses will include any money that you pay on a regular basis. This will include your bills for electricity, water, and other utilities. It will also include your rent or mortgage payment, vehicle payments, and any payment of loans. You should also include money for medicine and health-related expenses. Your attorney will help you determine which expenses should be included in your list.

Tax Returns

You must provide a copy of your most recent tax return as well as returns for any previous years that are part of your bankruptcy. This will allow the court to determine your total income and get a better understanding of your whole financial picture.

Credit Counseling

You will be required to attend credit counseling as part of the bankruptcy filing process. This will be a time when you will learn more about credit and financial debt. You will be given information and tools to help you control your debt in the future so you do not end up in the same situation again. This will give you greater power over your financial life and the confidence to start again armed with new tools and skills.When you have finished your credit counseling you will be given a certificate that shows you completed it. This certificate should be filed with the court so they know you met this requirement.


There are certain fees involved in filing Chapter 7 bankruptcy, and the person filing must pay those fees before the process begins in most cases. Sometimes the fees may be divided into several payments if coming up with the full amount is too much of a hardship. People whose income is a certain amount below the poverty line may have the fees waived.The fees involved are $245 to cover the filing of the case, $75 for miscellaneous administrative expenses, and a $15 fee for the trustees. People who are given permission by the court to pay these fees in installments typically pay four times. The court must give permission for this to occur.


While the majority of your assets will be liquidated in a Chapter 7 bankruptcy, some of your property is exempt from this action. You will need to make a list of property you do not wish to have liquidated, and the court will consider this during the bankruptcy proceedings. In this way, you may be able to keep property like your home or your car.The property that is eligible to be an exemption varies, and sometimes you have a choice. Your lawyer will help you understand what you own that can be an exemption to the bankruptcy proceedings as well as any options you have when it comes to this matter. 

Collection is Stopped

Once you have filed all of the required paperwork, your bankruptcy is underway. At this time the people to whom you owe money are barred from contacting you. Collection calls must stop immediately, and your creditors can no longer send you bills for the money owed. Actions like wage garnishments and other attempts to get money owed will also stop.

Creditors' Meeting

You, your creditors, and the trustees are then required to have a meeting where your creditors and the trustees can ask you questions about the bankruptcy. Your lawyer can help you understand which questions might be asked and how you can best respond to them. This meeting is partly to help you understand the consequences of filing for bankruptcy and partly to make sure you know what is going to happen in the future.At this meeting, you will also be asked to show identification to prove your identity. The meeting will allow creditors to be satisfied that the information you have given about your finances is true and complete. This is why they get a chance to ask questions about the documentation you have provided.


After the creditors' meeting has been completed, your assets are liquified in order to pay back all or most of the debt you have incurred. The trustees will take care of this action, so this does not require you to do anything.Unsecured priority debts are typically paid first. This would be important debt like unpaid taxes. Next comes secured debt. Secured debt typically has a fixed payment and may be something like a car loan or a personal loan. Last comes nonpriority unsecured debt. This is debt with revolving payments like credit cards.

Bankruptcy Laws

Original Bankruptcy Laws

Historically, bankruptcy laws were created during times of economic hardship and were typically designed to benefit the creditor. The laws were there to make sure that a creditor gets the money that is owed. Early bankruptcy laws were passed in 1800, 1837, and 1867 in response to various problems going on in the country at the time. These laws were all repealed within a few years of being enacted.Early bankruptcy proceedings were not voluntary for the person owing a debt.

Modern Bankruptcy Laws

Today's bankruptcy laws exist to help people who have gotten into more debt than they can handle through their own bad decisions or through life events that were beyond their control. Modern bankruptcy allows people the chance to start over.With this knowledge, you should no longer be asking yourself what is Chapter 7 bankruptcy. If you think you may need to file for this type of bankruptcy it is important that you have an experienced attorney on your side. Call Stockton and Stern LLC for a consultation about your debt and the best way of moving forward.