Who Should File for Chapter 7?

Chapter 7 Bankruptcy, also known as straight bankruptcy or no asset bankruptcy, allows a debtor to wipe out most of his unsecured debt.  In the typical Chapter 7 bankruptcy, unsecured creditors get nothing because what few assets the average Chapter 7 debtor owns are usually exempt and, thus, unavailable for distribution to those creditors. 

Can Anyone File a Chapter 7 Case?

Any individual residing, domiciled, or having property in the U.S. may file Chapter 7 Bankruptcy.  Businesses may also file Chapter 7.  Prior to October 2005, there were no income restrictions for Chapter 7 debtors.  However, the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), made is necessary for individual Chapter 7 debtors to satisfy the median income and means tests.  If a debtor cannot satisfy either of these tests, he is barred from filing a Chapter 7 case. 

Chapter 7 Bankruptcy is not the Right Option for Some

Chapter 7 bankruptcy is ideal of debtors with few assets whose debts are primarily unsecured.  Filing Chapter 7 might also be a good option for a debtor whose assets have little equity.  

On the other hand, if a debtor has assets whose equity substantially exceeds the available bankruptcy exemptions, Chapter 7 would not be the best option.  Under these circumstances, the bankruptcy trustee will usually exercise his right to sell those assets and distribute the net proceeds from the sale to unsecured creditors. 

Additionally, certain debtors are ineligible to file a Chapter 7 bankruptcy.  Ineligible debtors include those who have: 

• Received a Chapter 7 discharge within the previous eight years;
• Received a Chapter 13 discharge within the previous six years; or
• Had a Chapter 7 or Chapter 13 case dismissed within the previous 180 days period as a result of:
  • Violation of a court order;
  • A ruling by the court that the case was fraudulent;
  • A ruling by the court that the case was filed in bad faith; or
  • A voluntary dismissal after a creditor filed a Motion for Relief from Stay. 

Are All Unsecured Debts Dischargeable in a Chapter 7 Case?

Not all unsecured debts are dischargeable in bankruptcy.  These include: 

• Certain tax debts;
• Domestic support obligations such as child support, alimony, and spousal support;
• Property settlements owed to a spouse, former spouse, or child pursuant to a family law order;
• Fines and debts owed to governmental entities;
• Debts incurred as a result of a DUI/DWI; and
• Student loans. 

Getting Legal Help

An experienced bankruptcy attorney can tell you whether you qualify to file a Chapter 7 case and can help you decide whether Chapter 7 is the right choice for you.  Your bankruptcy attorney will draft and file the bankruptcy petition and schedules and will represent you until your case is discharged.