Considering Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common form of personal bankruptcy for people to file. It’s the most “popular” form because it’s fairly straightforward, inexpensive to file, requires little time, is finalized quickly and at the end, your consumer debt is erased.

You are eligible to file for Chapter 7 bankruptcy if:

  • you won’t have enough income over the next five years to pay back 25% or more of your unsecured debts
  • you live or maintain property in the U.S.,
  • you have not have been granted a Chapter 7 discharge within the last 6 years or
  • you have not had a bankruptcy filing dismissed within the last 180 days

Chapter 7 bankruptcy is also called a “liquidation proceeding” or “straight bankruptcy.” That’s because when you file for Chapter 7, the courts will liquidate, or sell off, all your non-exempt property to pay back your creditors. So what is non-exempt property?

Non-Exempt Property
(things that will be sold)

Exempt Property
(things you get to keep SUBJECT TO STATE AND LOCAL EXEMPTION AMOUNTS)
  • Stocks and/or bonds
  • CDs
  • Money-market funds
  • Valuable collections
  • Vacation or investment properties
  • Some of the equity you have built up in your home
  • Retirement savings (401(k) plans, some IRAs)
  • Social Security income
    Disability
  • Unemployment income
  • Welfare
  • Alimony and child support
  • Your car, up to a certain value
  • Necessary clothes
  • Furniture
  • Personal belongings up to a certain value (i.e. mementos, jewelry)

Depending on what state you live in you may have a choice of using federal or state exemptions, and you should carefully review your choices before filing.