Chapter 7 is a form of bankruptcy that allows people or businesses to settle their debts using a court process. This form of bankruptcy helps individuals or companies that have bills, loans, medical bills or credit card payments that they are and/or will be unable to pay.

Definition

Under Chapter 7 bankruptcy, the assets of a person or business entity are sold off by a trustee so that the money from these items can be given to creditors, according to USCourts.gov. People are not allowed to file for bankruptcy for student loans, taxes or child support.

Assets

Cars, boats, homes, tools, furniture and other personal possessions are sold off to pay creditors when someone files for Chapter 7 bankruptcy. Sometimes properties and automobiles are considered exempt, according to Chapter7.com.

Means Test

To be eligible for Chapter 7 bankruptcy, debtors need to pass a means test, which looks at whether their income will allow them to pay off their debts over the next five years.

Process

People who file for bankruptcy are required to get credit counseling 180 days before they file for Chapter 7 bankruptcy, according to the USCourts.gov. To file for bankruptcy, people or businesses start by filing a petition with a bankruptcy court and filling out forms related to their assets, exempted property, expenses, income and debts. About four to six months after filing the position, the debtor may receive a discharge, meaning he is no longer liable for many of his debts.

Effects

Chapter 7 bankruptcy stays on people's credit record for 10 years and often affects their ability to get loans and credit cards.

Source:

U.S. Courts

Chapter7.com

BankruptcyAction.com

Resource:

BankruptcyHome.com

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