Chapter 7 Liquidation

Chapter 7 Liquidation

Chapter 7 bankruptcy — often called "straight bankruptcy" or "liquidation" — allows individuals and businesses to eliminate most unsecured debts and get a financial fresh start.

Who Qualifies?

To file Chapter 7, individuals must pass the means test:

1. If your median household income is below the state median for your family size, you automatically qualify

2. If your income is above the median, a detailed calculation determines whether you have sufficient disposable income to fund a Chapter 13 plan

3. If you have too much disposable income, the court may dismiss your Chapter 7 case or convert it to Chapter 13

The means test uses a six-month lookback period and allows certain deductions.

The Chapter 7 Process

1. Credit counseling — you must complete an approved credit counseling course within 180 days before filing

2. Filing the petition — submit bankruptcy forms, schedules (listing all assets, debts, income, and expenses), and the means test calculation

3. Automatic stay — takes effect immediately, stopping most collection actions

4. Trustee appointment — a Chapter 7 trustee is assigned to administer the case

5. 341 meeting of creditors — the debtor answers questions under oath from the trustee and creditors (usually brief)

6. Asset liquidation — the trustee identifies and sells non-exempt assets (in most cases, debtors have few or no non-exempt assets — called a "no-asset" case)

7. Debtor education course — required before discharge

8. Discharge — typically received 60–90 days after the 341 meeting

What Chapter 7 Eliminates

Chapter 7 generally discharges:

What Chapter 7 Does NOT Eliminate

Reaffirmation Agreements

A debtor may choose to reaffirm a debt — voluntarily agreeing to remain liable — in order to keep secured property (like a car). The reaffirmation agreement must be filed with the court.