What is a Chapter 7 and how does it work?
In a Chapter 7 bankruptcy, debtors give up nonexempt property (often called luxury items) they own at the time they file the bankruptcy case. A trustee sells this property and uses the proceeds to pay creditors. The debtors receive their discharge shortly after the case is filed. The discharge relieves the debtor from the obligation of paying certain debts. In this way, Chapter 7 debtors are allowed to keep the money that they earn after filing the bankruptcy case, as well as most other property that they obtain after the filing.
Chapter 7 is that part of the Bankruptcy Code that deals with liquidation. The Bankruptcy Code is the 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.
A Chapter 7 bankruptcy is also called a straight or ordinary bankruptcy. In a Chapter 7 bankruptcy, debtors give up non-exempt property (often called luxury items) they own at the time they file the bankruptcy case. A trustee sells this property and uses the proceeds to pay creditors. The debtors receive their discharge shortly after the case is filed. The discharge relieves the debtor from the obligation of paying certain debts. In this way, Chapter 7 debtors are allowed to keep the money that they earn after filing the bankruptcy case, as well as most other property that they obtain after the filing.
