Chapter 7 Bankruptcy

Chapter 7 is known as Consumer Debt Liquidation

Chapter 7 is the bankruptcy relief most the most common. On filing, all assets pass to an estate administered by a trustee, who liquidates all nonexempt assets of value. Creditors are invited to file claims against the estate, and the claims are paid in accordance with the priorities. If the debtor is an individual, the debtor receives a discharge of all debts, other than debts declared non-dischargeable, unless a creditor can establish a basis under to deny the debtor’s discharge.

The debtor’s eligibility for Chapter 7 relief is governed primarily by the means test and the credit counseling. The means test, which is intended to further a “need based” bankruptcy system, is applicable to individual debtors with primarily consumer debt. Under the test, a debtor may not proceed under Chapter 7 if an objective, formula-based analysis of the debtor’s income and expenses indicates that he or she will be able to repay some or all of what he or she owes to unsecured creditors. If the debtor’s annualized current monthly income is less that the applicable median as published at http://wwww.justice.gov/ust/eo/bapcpa/meanstesting.htm, then no presumption of abuse exists and the debtor may proceed with a Chapter 7.

The credit education provisions require that an individual receive a briefing on available credit counseling opportunities and assistance in performing a budget analysis from an approved, non-profit budget and credit counseling agency during the 180 days before the filing of the bankruptcy petition. In addition, before a discharge may be entered, the debtor must complete an instructional course concerning personal financial management.