What is a Chapter 7?
Chapter 7 is the most common form of liquidation bankruptcy. It is a “fresh start” proceeding in which a consumer or business asks the bankruptcy court to wipe out (discharge) the debts owed. Certain debts cannot be discharged. In exchange for the discharge of debts, the business’s assets or the consumer’s nonexempt property is sold (or “liquidated”), and the proceeds are used to pay off creditors. Chapter 7 is available to individuals, married couples, corporations and partnerships. Individual debtors typically receive their discharge within 4-6 months of filing the case. Any wages the debtor earns after the case is begun are the debtor’s, beyond the reach of creditors who had claims on the date of filing.
This is known as a straight bankruptcy. The debtor turns all of his or her non-exempt property over to a trustee, who distributes its value to creditors. The debts usually clear within four months, and the debtor has the opportunity to start all over again. This is the option chosen by most individuals who are truly struggling to pay their monthly bills on time and are being harassed by collectors.
