What is the Meaning of Chapter 7 for a Bankruptcy Filing?

The U.S. Bankruptcy Code is broken into sections, known as chapters, which dictate the statutes, laws, regulations, and procedures for filing certain types of bankruptcy applicable to individuals, businesses, and even municipal governments. Under Chapter 7 of the U.S. bankruptcy code, the meaning of bankruptcy under Chapter 7 is definitely explained and regulated. For most individuals, the relative complexity of actually filing a bankruptcy case requires the insight, guidance, and counsel of a practicing bankruptcy lawyer. Though federal laws dictate the majority of the bankruptcy process under Chapter 7, several state-specific considerations also are relevant in all bankruptcy cases. The following article generally outlines the meaning of bankruptcy under Chapter 7 for individual debtors.

Outcome of Chapter 7 Filings

In short, a debtor seeks relief under Chapter 7 bankruptcy from outstanding debt obligations. Specifically under Chapter 7, a debtor can discharge a number of unsecured debts and certain other debt obligations. Though not all debts are dischargeable under Chapter 7, most notably tax debts, child support in arrears, and certain secured debts, a debtor can obtain several forms of relief outside of discharge, including automatic stay protections and a decreased debt to income ratio, which may facilitate repayment of other non-dischargeable debt obligations.

The idea behind Chapter 7 is to provide a debtor with the opportunity to start with a clean financial slate, albeit with a damaged credit and financial history. However, as part of the discharge portion of bankruptcy, a debtor must also undergo a liquidation of his or her assets as well. What this means is that during Chapter 7, a debtor must liquidate (turn over to the bankruptcy trustee for sale) numerous personal assets. Granted, there are certain exemptions from liquidation available, but these will vary from state to state and case by case. In exchange for liquidating assets, a debtor is afforded discharge of several other types of debt, all while under the supervision and direction of a bankruptcy trustee appointed by the courts.

Getting Legal Help with Chapter 7 Bankruptcy

It is important for debtors to note that the ability to file for Chapter 7 is a highly regulated process, and in turn, not all individuals will actually qualify under federal laws for relief under Chapter 7. Furthermore, certain debt obligations simply cannot be discharged under Chapter 7. Having legal counsel review your potential bankruptcy filing, as well advise on the personal implications of such a filing, is essential for all debtors.