Chapter 7 Bankruptcy is the most common type of bankruptcy filing in the US. A Chapter 7 Bankruptcy is available to individuals and married couples and is sometimes referred to as a “Liquidation Bankruptcy” because you will be required to sell most of your personal assets to repay your creditors and the bankruptcy trustee. In order to qualify for a Chapter 7 Bankruptcy, individuals must earn less than their state’s median income calculated on a monthly basis, or, submit to an “income means test” that involves a detailed evaluation of the individual’s income and expenses.
In a Chapter 7 Bankruptcy, your debts are forgiven or “discharged” and you are no longer responsible for repaying them. However, in a Chapter 7 Bankruptcy you will be required to surrender many of your personal assets, with a few limited exceptions, which will be sold by a court appointed bankruptcy trustee to pay the bankruptcy trustee, cover administrative costs and, court filing fees. Any amounts left over will then used to pay back your creditors. In addition to these costs, you are responsible for paying your attorney representing you in the bankruptcy proceedings.
You are allowed to keep certain assets in a Chapter 7 Bankruptcy, but the types and amounts vary depending on State and Federal law. You are, however, allowed to elect to follow the State or Federal law in this form of bankruptcy that is most favorable to you. In a Chapter 7 Bankruptcy you are also allowed to continue receiving any benefits you are entitled to from Social Security, Unemployment Insurance, Veterans Benefits or Welfare.