Chapter 7

Chapter 7

Liquidation

Chapter 7 is designed for debtors in financial difficulty who do not have the ability to pay their existing debts, usually because of medical reasons or job losses. Debtors whose debts are primarily consumer debts are subject to a ‘means test’ designed to determine whether the case should be permitted to proceed under chapter 7.

 

Under chapter 7, you may claim certain of your property as exempt under governing law. 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.

Assets (minus exemptions) are sold by a trustee and the proceeds used to pay expenses and creditors. To qualify for Chapter 7, individuals must pass a means test.

 

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 nondischargeable 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.