Chapter 7

Chapter 7 bankruptcy, also known as liquidation, is a type of bankruptcy that can eliminate many types of debts such as credit cards, medical debts, hospital or dental bills, personal loans and some taxes to the IRS or the state. If you are behind on payments and do not have the means to pay your monthly payments and living expenses (rent, electricity, water, food, etc.), chapter 7 bankruptcy could be the last resort to get back on your feet . However, you may have to give up some of your possessions.


When you file for bankruptcy Chapter 7, the court places an automatic protection of your current debts (Automatic Stay). This prevents creditors from collecting payments, garnishing your wages, foreclosing your home, recovering property, evicting or turning off your electricity, gas or water services. The court will take legal possession of your property and appoint a bankruptcy administrator for your case also called Trustee .

The trustee's job is to review your finances (income and expenses), personal property and supervise your Chapter 7 bankruptcy. The Court provides you with certain exemptions to protect your vehicles, money in bank accounts, your home and personal items. In California, there are 2 types of protections under the state code, these being CCP 704 and CCP 703; The attorney will advise you what protection is best to protect your property. In some cases, the Trustee will be in charge of selling certain goods that cannot be protected and the money on the sale of these goods will be used to pay your creditors. The Trustee will also conduct a meeting between you and your creditors, called a 341(a) c meeting of creditors, where you will go to a hearing and answer questions about your bankruptcy petition; In most cases, creditors do not appear at this hearing.

It should be noted that if you are represented by an attorney in your bankruptcy process then the attorney will this meeting of creditors with you and guide you throughout the process. This meeting iis not in front of a judge but in front of the Trustee which is responsible for reviewing your case.

At the end of the process, approximately four months after your initial filing, the court will enter an order discharging you from your debts (which means you no longer have to pay them). However, some type of debts generally cannot be discharged through bankruptcy, such as child support, alimony, court fees, some tax debts, and most student loans.

Who qualifies for Chapter 7 Bankruptcy? There are some requirements to qualify for a chapter 7 bankruptcy as follows:

  • Generally, you must complete a credit counseling course from an approved credit counseling agency within 180 days before filing.

  • The average of your monthly income during the previous six months must be less than the average income established by the number of family members in your household or if the income is to high to qualify you will be required to complete a form that determines your disposable income, you may still be able to qualify after taking in consideration your deductions such as payroll taxes, child support payments, alimony, etc. If you fail the means test, you may still be able to file bankruptcy but under Chapter 13.

  • You cannot have filed a Chapter 7 bankruptcy if you have filed a Chapter 7 within the past eight years.

  • What debts are discharged in a Chapter 7 Bankruptcy?

    A Chapter 7 bankruptcy will generally release you from you unsecured debts, such as credit card debts, medical bills and unsecured personal loans. The court will discharge these debts at the end of the process, usually three to four months after filing.

    Some debts such as child support or alimony, student loans, some taxes, penalties or court costs are not dischargeable.

    Your creditors may also object and prevent certain debts from being discharged. For example, a credit card company could oppose the debt of recent purchases of luxury items or cash advances.

    ¿How long does a Chapter 7 bankruptcy remains on your credit report?

    A Chapter 7 bankruptcy leaves a derogatory mark that can damage your credit for years to come. The Chapter 7 bankruptcy record can remain on your credit report for up to 10 years from the date the bankruptcy is filed in court, and a full Chapter 13 bankruptcy can remain on your credit report for seven years at from the date of submission.

    Accounts that were included in your bankruptcy may fall from your credit report before, since most negative marks are removed after seven years.

    Life after bankruptcy

    Filing for bankruptcy can be a stressful process. However, it may be your best option when debts continue to accumulate and you do not have the means to pay your creditors. It is also possible to recover from bankruptcy and rebuild your finances and credit, but it will take time. Generally, you are eligible to buy a home after two years of receiving a Bankruptcy Discharge Chapter 7.

    Contact one of our representatives to determine what type of bankruptcy is most effective for you and your family.