Chapter 7 bankruptcy is a legal process designed to help individuals or businesses eliminate most or all of their unsecured debts and get a financial "reset" or fresh start. Commonly referred to as "liquidation bankruptcy" the process aims to have a court-appointed trustee who can review and sell off liquid (non-exempt) property to repay creditors.
Individuals, partnerships or corporations can file for chapter 7 but will go through a "means test" to determine eligibility, primarily based on income. If, as an individual, your income is too high, you may be directed to file under Chapter 13.
To begin the proceeding, you will file a "petition" in bankruptcy court, listing all assets, debts, income, expenses, and recent financial transactions.
Once the petition is filed, an "automatic stay" will go into effect stopping most creditors from collecting on debts or foreclosing on your home.
Since bankruptcy falls under the exclusive jurisdiction of the federal court, your case will be governed by the Bankruptcy Code which is federal law.
During the proceedings, after credit counseling and an evaluation of your assets, debts, income, expenses and recent financial transactions, a court-appointed "trustee" will step in to facilitate the sale of said assets to creditors.
It is important to note, most "unsecured creditors" (e.g. credit cards, medical bills, personal loans etc.) will be discharged at the outset of the proceeding.
"Secured creditors" (e.g. mortgage debt, student loans, child support/alimony, tax bills etc.) will be involved in the court process as a named creditor.
Some things to consider before filing for Chapter 7:
PROS
Quick relief for most "unsecured" debt
Stops collections, lawsuits and garnishments
No repayment plan required
CONS
Loss of non-exempt property
Significant impact to your credit score (stays up to 10 years)
May make it harder to obtain future loans or housing
If you have any questions, please reach out to SNIDER LAW PLLC today!