Chapter 7 of the Bankruptcy Code is the law that provides for liquidation of non-exempt property and distribution of the proceeds to creditors in resolution of debt. Chapter 7 does not involve a plan of repayment. Instead, a bankruptcy trustee oversees the process, determining what non-exempt property you may have that can be liquidated, the proceeds of which are distributed to creditors in accordance with the Bankruptcy Code. The bankruptcy law also allows you to keep certain exempt property. Depending on your situation, filing bankruptcy under Chapter 7 may result in a loss of property.

A Chapter 7 bankruptcy begins with the filing of a petition with the United States Bankruptcy court where you live or you business’s principal office is located.  Other documentation has to be included with the petition for bankruptcy.  These include schedules of:

• assets and liabilities,
• income and expenditures,
• contracts and leases, as well as
• a financial statement.

In addition, documentation requested by the trustee, such as tax returns, must be provided. If your debt is primarily consumer related (credit cards, for instance), some additional documentation is required, such as:

• consumer credit counseling certificates of attendance
• any plans created through that counseling
• evidence of payments from your employers
• a statement of monthly net income
• any anticipated increase in income or expense after filing
• a record of any interested you have in federal or state tuition accounts

The court charges a $306 filing fee. Normally fees are paid to the clerk upon filing, though the clerk may grant permission for installment payments and can, at its discretion and based on your income, waive your filing fees. Failure to pay the fees can result in a dismissal of your bankruptcy petition.

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:

• A list of all creditors and the amount and nature of their claims;
• The source, amount, and frequency of the debtor’s income;
• A list of all of the debtor’s property; and
• A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married couples may jointly or individually file petitions. Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee and creditors can evaluate the household’s financial position.

Chapter 7 Eligibility

To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor:

• Is an individual, a partnership, or a corporation or other business entity
• subject to the means test described above, relief is available irrespective of the amount of debt or solvency.
• cannot file bankruptcy if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to comply with orders of the court or the petition was otherwise voluntarily dismissed
• must have, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing.