Chapter 7

Frequently Asked Questions About Chapter 7

What is chapter 7 and how does it work?

Chapter 7 is that part (or chapter) of the Bankruptcy Code that deals with liquidation. The Bankruptcy Code is that part of the federal laws that deal with bankruptcy. A person who files under chapter 7 is called a debtor. In a chapter 7 case, the debtor must turn his or her nonexempt property, if any exists, over to a trustee, who then converts the property to cash and pays the debtor's creditors. In return, the debtor receives a chapter 7 discharge, if he or she pays the filing fee, is eligible for such a discharge and obeys the orders and rules of the court.

What is a chapter 7 discharge?

It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not dischargeable under chapter 7, and some persons are not eligible for a chapter 7 discharge.

What debts are not dischargeable under chapter 7?

All debts of any kind or amount including out-of-state debts, are dischargeable under chapter 7 except the debts listed below. The following is a list of the most common debts that are not dischargeable under chapter 7:

  • (1) Most tax debts and debts that were incurred to pay federal tax debts.
  • (2) Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the case (included here are debts for luxury goods or services and debts for cash advances made within 90 days before the case is filed).
  • (3) Debts not listed on the debtor's chapter 7 forms, unless the creditor knew of the case in time to file a claim.
  • (4) Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the case.
  • (5) Debts for alimony, maintenance, or support and other divorce-related debts including property settlement debts.
  • (6) Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the case.
  • (7) Debts for certain fines or penalties.
  • (8) Debts for educational benefits and student loans that became due within the last seven years, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependents.
  • (9) Debts for personal injury or death caused by the debtor's operation of a motor vehicle, boat or aircraft while intoxicated.

What persons are not eligible for a chapter 7 discharge?

The following persons are not eligible for a chapter 7 discharge:

  • (1) A person who has been granted a discharge in a chapter 7 case filed within the last eight years.
  • (2) A person who has been granted a discharge in a chapter 13 case filed within the last six years, unless 70 percent or more of the unsecured claims were paid off in the chapter 13 case.
  • (3) A person who files a waiver of discharge that is approved by the court in the chapter 7 case.
  • (4) A person who conceals, transfers, or destroys his or her property with the intent to defraud his or her creditors or the trustee in the chapter 7 case.
  • (5) A person who conceals, destroys, or falsifies records of his or her financial condition or business transactions.
  • (6) A person who makes false statements or claims in the chapter 7 case, or who withholds recorded information from the trustee.
  • (7) A person who fails to satisfactorily explain any loss or deficiency of his or her assets.
  • (8) A person who refuses to answer questions or obey orders of the bankruptcy court, either in his or her bankruptcy case or in the bankruptcy case of a relative, business associate, or corporation with which he or she is associated.

What persons are eligible to file under chapter 7?

Any person who resides in, does business in, or has property in the United States may file under chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds.

May a husband and wife file jointly under chapter 7?

Yes. A husband and wife may file a joint petition under chapter 7. If a joint petition is filed, only one set of bankruptcy forms is needed and only one filing fee is charged.

How does the filing of a chapter 7 case affect collection and other legal proceedings that have been filed against the debtor in other courts?

The filing of a chapter 7 case automatically stays (or stops) most collection and other legal proceedings pending against the debtor. A few days after a chapter 7 case is filed, the court mails a notice to all creditors ordering them to refrain from any further action against the debtor. If necessary, this notice may be served earlier by the debtor or the debtor's attorney. Any creditor who intentionally violates the automatic stay may be held in contempt of court and may be liable to the debtor in damages. Criminal proceedings and actions to collect alimony, maintenance, or support from exempt property or property acquired by the debtor after the chapter 7 case was filed are not affected by the automatic stay. The automatic stay also does not protect cosigners and guarantors of the debtor, and a creditor may continue to collect debts of the debtor from those persons after the debtor files a chapter 7 case.

What should the debtor do if he or she moves before the chapter 7 case is closed?

The debtor should immediately notify the bankruptcy court in writing of the new address. Because most communications between a debtor and the bankruptcy court are by mail, it is important that the bankruptcy court always has the debtor's current address. Otherwise, the debtor may fail to receive important notices and the chapter 7 case may be dismissed. Contact your attorney immediately if you move.

How is a debtor notified when his or her discharge has been granted?

Usually by mail. Most courts send a form called "Discharge of Debtor" to the debtor and to all creditors. This form is a copy of the court order discharging the debtor from his or her dischargeable debts, and it serves as notice that the debtor's discharge has been granted. It is usually mailed about four months after a chapter 7 case is filed.

How long does a chapter 7 case last?

A chapter 7 case begins with the filing of the case and ends with the closing of the case by the court. If the debtor has no nonexempt assets for the trustee to collect, the case will most likely be closed shortly after the debtor receives his or her discharge, which is usually about four months after the case is filed. If the debtor has nonexempt assets for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his or her other duties in the case. Most consumer cases with assets last about six months, but some last considerably longer.

How does a chapter 7 discharge affect the liability of cosigners and other parties who may be liable to a creditor on a discharged debt?

A chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a chapter 7 discharge. Therefore, a person who has cosigned or guaranteed a debt for the debtor is still liable for the debt regardless of the debtor's chapter 7 discharge.