Chapter 7 is the most common form of bankruptcy. It is sometimes called total bankruptcy or liquidation bankruptcy. Simply stated, it is a proceeding in which the debtor's non-exempt assets, if there are any, are sold by the Chapter 7 Trustee and the proceeds distributed to creditors. In most cases, individual debtors get a discharge within 4-6 months of filing the case. For many cases individual debtors with consumer debts, there will be no non-exempt assets for the trustee to take and sell.

Chapter 7 Procedure

The case is started by filing a petition on the official forms, with schedules and a  Statement of Financial Affairs. On these forms you will list all of your assets and all of your debts, along with some recent financial history. As soon as the petition is filed, the automatic stay goes into effect , which is a court order barring all creditors from taking any steps to try to collect your debts. This means no phone calls, no lawsuits, no repossessions, and no garnishments of your wages.

In twenty to forty days after the petition is filed, the debtor must appear at the "first meeting of creditors." The name is misleading since creditors are rarely present. The main purpose of the meeting is for the trustee to ask the debtor questions under oath about their assets and liabilities. The trustee must determine whether there are assets which can be sold to pay creditors. Creditors are allowed to ask the debtor questions on those subjects.

Getting the Discharge

Creditors and the trustee have 60 days following the "meeting of the creditors" to challenge the debtor's right to a discharge. Unless the trustee or creditor brings a separate proceeding called an "Adversary Proceeding,"  the discharge will be issued shortly after the 60 day period expires.

The Discharge

Individual debtors get their discharge within 4-6 months of filing the case. The discharge applies to dischargeable debts that existed at the commencement of the case.  There are two categories which are not "dischargeable debts".

Secured debts are those debts where the creditor has a lien interest in property - The  most common secured debts are the mortgage on your house or a lien on your car to secure the car loan. These liens will not be discharged, therefore if you intend to keep these assets, you will have to continue to make payments.

Some debts are not dischargeable -  The most common are taxes, educational loans and child or spousal support. Other debts, such as those obtained by a fraud, may also be deemed non-dischargeable, but the creditor will have to prove fraud in a Bankruptcy Court proceeding.

Reaffirmation

Many debtors ask if they must include all of their debts in the bankruptcy petition. The answer is yes. A Chapter 7 debtor may chose to "reaffirm" any particular debt or debts. This means that the debtor chooses to pay a creditor and to remain obligated to pay that debt, even though it would have been discharged. Reaffirmation requires the debtor and the creditor to file an agreement with the Bankruptcy Court setting forth the debt and the terms of repayment.