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Chapter 7 Bankruptcy
Your Fresh Start (Liquidation)
Chapter 7 bankruptcy is the fastest and simplest type of bankruptcy.  It is designed primarily to help consumers and businesses with financial difficulty to discharge their debts through a process called liquidation.  Chapter 7 bankruptcy gets its name from Chapter 7 of the Bankruptcy Code.  Under this chapter, property is classified as exempt and non-exempt from the bankruptcy.  Generally speaking, the petitioner is able to retain exempt property.  All non-exempt property, however, must be surrendered to the trustee, who may sell it to satisfy any outstanding debts of the petitioner.  In the majority of cases, however, the petitioner has no non-exempt property for the trustee to sell.  These cases are called “no asset” cases.

The point of a Chapter 7 bankruptcy case is to get your debts discharged.  Only those debts that are specifically identified in the petition will be covered by the bankruptcy.  After about 90 days after you file for Chapter 7 bankruptcy, most of your debts will be discharged.  Some debts, however, will most likely not be discharged, except under very rare circumstances.  These include: taxes, child support, alimony, federally guaranteed student loans, and certain court-awarded damage claims.

Any debts that are secured by property, usually either a house or a car, are not discharged unless the property is returned.  If the petitioner has equity in the property, the trustee might still sell the property, pay the petitioner the exempt portion of the proceeds, and the rest will be used to pay off the creditor.  Any amount outstanding will then be discharged.  In certain circumstances, the petitioner can make arrangements with the creditor to reaffirm the debt and keep the property. 

It is important for the petitioner to remember that he/she must pay all debts that are incurred after filing for bankruptcy.  Generally speaking, the petitioner, however, may keep all money earned and all property accrued after the bankruptcy.
Eligibility Requirements
In order to qualify for Chapter 7 bankruptcy, the petitioner must prove that he/she makes no more than the median income for his/her home region.  If the petitioner’s income is higher than the median income, then the petitioner might still be possible to qualify, if he/she can pass the “means test” that compares the petitioner’s income with his/her expenses.
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