Chapter 7 Bankruptcy Information

Chapter 7 bankruptcy is one of two types of personal bankruptcy, the other being Chapter
13. Also called a liquidation bankruptcy, it involves liquidating some of a debtor’s assets and using the proceeds to pay his creditors. It is the only type of personal bankruptcy that provides for immediate discharge, as Chapter 13 involves a three- to five-year repayment plan. Under the new bankruptcy rules put into effect in 2005, not everyone can qualify for Chapter 7 bankruptcy—the means test limits it to those whose income is below the state median or who are too overstretched to afford their current debt.

Filing Chapter 7 Bankruptcy

Before filing Chapter 7 bankruptcy, you need to take the means test to make sure you qualify. A bankruptcy attorney can help you complete the test and verify your financial information. Once you’ve been approved for Chapter 7 bankruptcy, you can fill out the necessary paperwork and file them at your local bankruptcy courts. You will also have to pay a $200 filing fee and complete a credit counseling course.

More Information on Filing Chapter 7 Bankruptcy

Chapter 7 Bankruptcy Forms

All personal bankruptcy forms can be downloaded from the U.S. Courts website. For Chapter 7, the forms you need, known as schedules, include lists of real and personal property and exempt property; lists of secured, unsecured, and “unsecured priority” creditors and co-debtors; unexpired leases or executory contracts, current income and expenses, and a statement of income and expenses used for the means test. Not all of them will be necessary in every case; your bankruptcy lawyer can help you determine which ones you will need to fill out. Make sure to fill the forms completely—withholding any information can be construed as fraud and can cost you much more than the bankruptcy itself.

Chapter 7 vs. Chapter 11 Bankruptcy

Chapter 7 bankruptcy can also be used by businesses as an alternative to Chapter 11 bankruptcy. Unlike Chapter 7, however, Chapter 11 bankruptcy is strictly for businesses and cannot be used for personal bankruptcy filing. Under Chapter 11, debtor companies are allowed to remain in operation while reorganizing their debt to pay off their lenders. The debt limit is much higher than in Chapter 7 bankruptcy, so it’s usually reserved for companies who have huge amounts of debt and very few assets.