Chapter 7 Bankruptcy

What Chapter 7 does

Chapter 7 bankruptcy, sometimes referred to as straight bankruptcy, allows an individual's nonexempt assets to be sold by the bankruptcy trustee and distributed to creditors. Most often, though, a Chapter 7 case is a “no-asset case,” where the debtor can claim all of their property as exempt.

Upon completion of a Chapter 7 case, the individual typically receives a bankruptcy discharge, which frees them from any personal obligation to repay the discharged debts. Certain debts — such as secured debt, child support and recent income taxes — are not dischargeable, and a discharge typically will not terminate liens on property.

The automatic stay

When an individual files for bankruptcy, their property is protected by a provision of the bankruptcy code known as the automatic stay. It goes into effect immediately upon filing the petition.

• Prohibits a creditor from foreclosing or repossessing your property
• Stops enforcement of a judgment that was already obtained
• Stops the filing or continuation of a lawsuit against you
• Prevents utilities from being shut off
• Prohibits any act to collect or recover your debt

The means test

Eligibility for Chapter 7 involves a comparison of your household income to the median for a household of your size in Pennsylvania, along with an analysis of allowed expenses. This calculation has a number of technical steps, and small details can change the result — it is one of the first things an attorney reviews with you.

What you can keep

When filing for bankruptcy you are allowed to exempt a certain amount of property. The allowances are generous, and most people that file bankruptcy are allowed to keep all of their property. In Pennsylvania, a Chapter 7 filer can choose between the federal and state exemption lists; the federal list is used in most cases.

The most important category for most debtors is the $13,900 wild-card exemption, which can be applied to anything else the person has. Exemptions apply per filer, so a married couple filing together each receives the full amount.

Do I have to go to court?

Most people who file for bankruptcy do not go to court. Instead, you attend a “meeting of the creditors.” Despite the name, creditors rarely attend — the parties are usually the person filing, their attorney and the bankruptcy trustee. These meetings usually last between three and seven minutes.