Chapter 7 Bankruptcy

     Chapter 7 bankruptcy is known as "straight" or "liquidation" bankruptcy. It can be filed by individuals, partnerships and corporations. There is no requirement that a debtor have a certain amount of debt, or even that the debtor is unable to pay his debts. The normal life-span of most Chapter 7 cases is approximately 90 days, start to finish. Of all the chapters, it is by far the most common type of bankruptcy filing.

Other Chapter 7 Pages

      View these pages for more information on Chapter 7.

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"Means Test"

     A Chapter 7 case filed by an individual debtor whose debts are primarily consumer debts is subject to dismissal if the court finds that granting relief would be an "abuse" of the bankruptcy system, under Code Section 707(b). If the debtor's "current monthly income" is more than the median income for the state in which the petition is filed, the debtor must complete the so-called "means test" to determine if the Chapter 7 petition filing is presumed abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, after subtracting certain specified allowed expenses, is more than (i) $ 11,725 or (ii) 25% of the debtor's unsecured non-priority debt, as long as that amount is at least $ 7,025. The debtor can attempt to rebut this presumption by showing "special circumstances" that justify a downward adjustment of income or upward adjustment of expenses. If the debtor is unable to rebut the presumption, then the case will be dismissed, unless the debtor consents to conversion of the case to Chapter 13 (or Chapter 11).

Filing the Petition and Schedules

     In Chapter 7, the case begins when the debtor files a petition, accompanied by a schedule of assets and liabilities, statement of financial affairs, schedule of current income and expenditures, and list of unexpired leases and executory contracts. Debtors must provide the appointed trustee with a copy of his most recently filed income tax return, and in individual consumer cases, with a copy of pay-stubs for the preceding 60 days.

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The Automatic Stay

     The filing of the petition operates to give the debtor the protection of the "automatic stay" of 11 U.S.C. Section 362(a), preventing creditors from attempting to recover most pre-petition debts, whether by collection action, lawsuits, wage garnishment or other judgment enforcement procedures. The stay also prevents creditors from taking property of or from the estate. There are several exceptions to the automatic stay, including police and regulatory actions and support claims. The stay is also subject to certain limitations where the debtor has previously filed bankruptcy.

Credit Counseling Course Required

     An individual debtor with primarily consumer debts is also prohibited (with rare exception) from filing Chapter 7 or any other bankruptcy petition if he has not received an approved credit counseling course within 180 days prior to the filing.

Repeat or Serial Filings

     An individual debtor is prohibited from filing Chapter 7 or any other bankruptcy case, if during the preceding 180 days a prior bankruptcy case was dismissed for failure of the debtor to comply with court orders, or if the debtor obtained a dismissal of the case after secured creditors filed relief from stay motions to foreclose on their liens.

Written by Henry Rendler