What is chapter 7 bankruptcy?
Chapter 7 bankruptcy is one of two options available for most individuals filing for bankruptcy in Illinois. Chapter 7 is also known as liquidation bankruptcy because the debtor's assets, with some exceptions, will be liquidated to satisfy outstanding debts to the extent possible.
Among the first steps in an individual Chapter 7 filing is the means test. The test examines specifics such as monthly income and expenses to determine whether a Chapter 7 filing is appropriate. It is a heavily fact-dependent analysis. Those whose monthly income is less than the median income in Illinois need not complete the means test.
The case begins with the initial filings, which must include the bankruptcy petition along with a statement of financial affairs and schedules of assets and liabilities, income and expenditures and contracts and leases. There are other requirements, including the completion of pre-bankruptcy credit counseling and the payment of filing fees. Those who cannot afford to pay the filing fees may be eligible for a fee waiver or may be able to pay some of the fees in installments. The Chapter 7 rules allow the debtor to exempt certain assets from the creditors' claims and the debtor may elect to enter into reaffirmation agreements in order to keep others. Reaffirming a debt is a serious decision as it prevents the discharge of the debt at the conclusion of the proceedings.
The filing of the petition automatically stays most pending debt collections for at least a short period. On completion of the Chapter 7 process, the filer's debts are discharged. Excluding dismissed cases and those that are converted to a different type of bankruptcy, more than 99 percent of filers receive a discharge. As every debtor's circumstances are unique, the foregoing is not meant to constitute legal advice. A bankruptcy attorney can determine if a Chapter 7 filing is available and appropriate for a particular client's situation.
Source: United States Courts, "Liquidation Under the Bankruptcy Code", September 15, 2014