Chapter 7 - Liquidation Bankruptcy


     A Chapter 7 bankruptcy is also known called a "liquidation bankruptcy".  The term "liquidation" is used because a Chapter 7 Bankruptcy Trustee, appointed in to administrate a debtor's bankruptcy, is responsible for collecting and selling the debtor's "non-exempt" assets to pay creditors.  Nevertheless, the Bankruptcy Code provides debtor with a number exemptions to protect certain types of property from liquidation.  Generally most people who qualify to file a Chapter 7 Bankruptcy can protect most if not all of their property from liquidation by the Chapter 7 trustee.


      Under a Chapter 7 bankruptcy, most, but not all, of your debts can be discharged. As an individual, you can lose some of your property (nonexempt assets) but each individual's Chapter 7 bankruptcy is unique.


     Types of debts that can not be discharged include:

  • certain tax claims
  • debts not set forth by the debtor on the lists and schedules the debtor must file with the court
  • debts for spousal or child support or alimony
  • debts for willful and malicious injuries to person or property
  • debts to governmental units for fines and penalties
  • debts for most government funded or guaranteed educational loans
  • benefit overpayments
  • debts for personal injury caused by the debtor's operation of a motor vehicle while intoxicated
  • debts owed to certain tax-advantaged retirement plans
  • and debts for certain condominium or cooperative housing fees.


     To qualify to file a Chapter 7 liquidation bankruptcy, a debtor's "current monthly income" must be less than the state median for the debtor's household size.  The Bankruptcy Code requires the application of a "means test" to determine whether the debtor qualifies to file chapter 7 bankruptcy.


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