Overview

Chapter 7 Bankruptcy, also called “Liquidation”, is an orderly, court-supervised procedure whereby a trustee takes over the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors. In most cases, there are no actual distributions to creditors since most of the time the debtor’s property is exempt, meaning the debtor has a right to retain the property.

Cases where the debtor’s property is exempt are called “no-asset cases”. A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court.

In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives a discharge just a few months after the petition is filed. Amendments to the Bankruptcy Code enacted in to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require the application of a “means test” to determine whether individual consumer debtors qualify for relief under chapter 7. If such a debtor’s income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 relief.

Compiled by:

Leon H. Rountree III
Consumer Bankruptcy Attorney