Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” provides individuals and businesses an opportunity to eliminate most debts and start fresh. Understanding how this process works can help you decide if it’s the right solution for your financial troubles.
The Chapter 7 bankruptcy process begins with filing a petition with the bankruptcy court.
This petition includes detailed information about your financial situation, such as income, expenses, debts, and assets. Once filed, an automatic stay is issued, which temporarily halts all collections, foreclosures, and repossessions, giving you some breathing room.
Next, a bankruptcy trustee is appointed to oversee your case. The trustee’s primary role is to review your financial documents, identify non-exempt assets, and liquidate these assets to repay your creditors. However, many people who file for Chapter 7 bankruptcy find that most of their assets are protected by exemptions, allowing them to keep essential property like their home, car, and personal belongings.
A crucial step in the process is the meeting of creditors, where you must answer questions about your financial affairs under oath. Creditors may attend this meeting, but often, they do not. Following this, the trustee will determine if there are any assets to liquidate.
If the trustee finds no non-exempt assets to sell, you may receive a discharge of your eligible debts within a few months. This discharge means you are no longer legally required to pay those debts. Not all debts can be discharged; for instance, student loans, child support, and certain taxes usually remain.
