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Bankruptcy Overview: Chapter 7

A person who files for bankruptcy is called a debtor. If the debtor is an individual he or she may file Chapter 7 bankruptcy or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy is also known as a liquidation bankruptcy. It gets rid of ALL of the debts of the debtor that are dischargeable. The debtor should also be cautioned that Chapter 7 liquidates ALL of his or her assets that are NOT eligible for exemption. The Chapter 7 Debtor could contact our New York Bankruptcy Lawyers for a consultation. Persons who have assets should consult a competent bankruptcy lawyer before filing for Chapter 7 Bankruptcy.

Before filing Chapter 7 bankruptcy the debtor should also ensure that he or she is eligible to file for a Chapter 7 bankruptcy discharge.


                                  Who May File Chapter 7 Bankruptcy


The current bankruptcy law determines who could file Chapter 7 Bankruptcy. Eligibility to file Chapter 7 Bankruptcy is based largely on the income of the debtor and the size of the debtor's family. The income and family size threshold is determined by the State the debtor resides and is filing for Chapter 7 Bankruptcy discharge. So before filing for Chapter 7 bankruptcy the debtor should ensure that he or she falls within the guidelines for eligibility in his or her state.

However, if the bankruptcy filer's income is above the state's median income requirement he or she may still be able to file for Chapter 7 Bankruptcy discharge but must first do a means test to establish that he or she falls within an exception to the guidelines. The means test is a requirement that is intended to prevent debtors who have the ability to repay their creditors from obtaining Chapter 7 Bankruptcy discharge. The debtor's ability to repay creditors is based on an assessment of his or her income for the six months immediately before the bankruptcy filing.

The means test along with the schedules of the debtor's income and expenses also establish whether the debtor has sufficient income leftover after paying ALL of his or expenses to atleast make some payment to creditors under a Chapter 13 Bankruptcy, which is more of a payment plan for a period of three to five years. Therefore, even if the debtor falls within the income and household size guidelines for his or her state he or she may still be forced to convert to Chapter 13 Bankruptcy reorganization if there is sufficient leftover income often referred to as disposable income.

Because Chapter 7 Bankruptcy also liquidates the debtor's assets, even where a potential bankruptcy filer is qualified for Chapter 7 Bankruptcy he or she should consult a competent bankruptcy attorney to ensure that his or her assets will NOT be taken away and sold by the trustee or  atleast the assets the debtor would like to keep and considers valuable would be protected.


What Makes A Debtor Ineligible to File Chapter 7 Bankruptcy


There a number of reasons why a debtor may be ineligible to file for Chapter 7 Bankruptcy. You should consult a competent bankruptcy attorney to review your particular circumstances to detemine whether you are ineligible for Chapter 7 Bankruptcy. Below are some factors that may make a debtor ineligible to file Chapter 7 Bankrupcty:

  • A previous debt was discharged within the past eight years under Chapter 7;
  • A previous debt was discharged within the past six years under Chapter 13;
  • Their income, expenses and debt would allow for a Chapter 13 filing;
  • The debtor attempted to defraud creditors or the bankruptcy court; or
  • The debtor failed to attend credit counseling

The Automatic Stay


The automatic stay is one of the benefits a debtor gets from filing Chapter 7 Bankruptcy. It is an injunction that prevents creditors from taking any steps to collect the debt owed by the debtor. It is called an automatic stay because it goes into effect as soon as the debtor files the bankrucpty petition with the bankrucpty court.



The automatic stay protects a debtor and property of the estate from creditors. It means that ALL harassing telephone calls, law suits, wage garnishment, repossession of vehicles, or similar debt collection activities must stop.

After you file you chapter 7 bankruptcy petition you will be required to appear before the chapter 7 bankruptcy trustee at a meeting called the 341 meeting of creditors. To learn more about the 341 meeting click here. For more general information about the Chapter 7 Bankruptcy process click here.