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Chapter 7 - Liquidation Bankruptcy

Chapter 7 bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to eliminate most of their unsecured debts. The term "liquidation" reflects the process whereby a Chapter 7 Bankruptcy Trustee is appointed to oversee the debtor's case. This trustee is responsible for collecting and selling the debtor's "non-exempt" assets to pay off creditors. However, the Bankruptcy Code provides various exemptions designed to protect certain types of property from liquidation, enabling most individuals who qualify to retain most, if not all, of their assets.

Under Chapter 7 bankruptcy, while a vast majority of debts can be discharged, there are specific types of debts that cannot be eliminated. Individuals may lose some non-exempt property, but each Chapter 7 case is unique to the individual circumstances involved.

Debts that generally cannot be discharged include:

- Certain tax obligations
- Debts not listed by the debtor on the required court filings
- Obligations for spousal or child support (alimony)
- Debts arising from willful and malicious injuries to another person or their property
- Fines and penalties owed to governmental units
- Most government-funded or guaranteed educational loans
- Overpayments of benefits
- Debts associated with personal injury caused by operating a motor vehicle while intoxicated
- Obligations to certain tax-advantaged retirement plans
- Fees related to condominium or cooperative housing.

To qualify for Chapter 7 liquidation bankruptcy, a debtor's "current monthly income" must be below the state median income level for their household size. The Bankruptcy Code mandates the application of a "means test," which assesses the debtor's financial situation to determine eligibility for filing Chapter 7 bankruptcy.

For personalized guidance, click "Chat Now" to speak with Demetrius Parrish for a free consultation, or feel free to email or call us at 215-735-3377.

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