CHAPTER 7 FREQUENTLY ASKED QUESTIONS
What is a Chapter 7 and how does it work?
Chapter 7 is that part of the Bankruptcy Code that deals with liquidation.
The Bankruptcy Code is the part of the federal laws that deal with bankruptcy.
A person who files under Chapter 7 is called a debtor. In a Chapter 7
case, the debtor must turn his or her nonexempt property, if any exists,
over to a trustee, who then converts the property to cash and pays the
debtor's creditors. In return, the debtor receives a Chapter 7 discharge,
if he or she pays the filing fee, is eligible for such a discharge, and
obeys the orders and rules of the court.
What is a Chapter 7 discharge?
It is a court order releasing a debtor from all of his or her dischargeable
debts and ordering the creditors not to attempt to collect them from the
debtor. A debt that is discharged is on that the debtor is released from
and does not have to pay. Some debts, however, are not dischargeable under
Chapter 7, and some persons are not eligible for a Chapter 7 discharge.
What debts are not dischargeable under Chapter 7?
Most debts of any kind or amount, including out-of-state debts, are dischargeable
under Chapter 7 except the debts listed below. The following is a list
of the most common debts that are not dischargeable under Chapter 7:
- Most tax debts and debts that were incurred to pay federal tax debts.
- Debts for obtaining money, property, services, or credit by means of false
pretenses, fraud, or a false financial statement, if the creditor files
a complaint in the case (included here are debts for luxury goods or services
and debts for cash advances made within 90 days of the case being filed.)
- Debts not listed on the debtor's Chapter 7 forms, unless the creditor
actually knew of the bankruptcy filing in time to file a claim and subsequently
failed to timely do so.
- Debts for fraud, embezzlement, or larceny, if the creditor files a complaint
in the case.
- Debts for alimony, maintenance, or support and, if the creditor files a
complaint in the case, certain other divorce related debts including property
- Debts for intentional or malicious injury to persons or property of another,
if the creditor files a complaint in the case.
- Debts for certain fines and penalties.
- Debts for educational benefits and student loans that became due within
the last 10 years, unless a court finds that not discharging the debt
would impose an undue hardship on the debtor and his or her dependants.
- Debts for personal injury or death caused by the debtor's operation
of a motor vehicle while intoxicated.
- Debts that were or could have been listed in a previous bankruptcy case
of the debtor in which the debtor did not receive a discharge.
What persons are eligible to file under Chapter 7?
Any person who resides in, does business in, or has property in the United
States may file under Chapter 7, except a person who has been involved
in another bankruptcy case that was dismissed within the last 180 days
on certain grounds.
What persons are not eligible for a Chapter 7 discharge?
The following persons are not eligible for a Chapter 7 discharge:
- A person who has been granted a discharge in a Chapter 7 case filed within
the last seven years.
- A person who has been granted a discharge in a Chapter 13 case filed within
the last seven years, unless 70 percent or more of the "unsecured"
claims were paid of in the Chapter 13.
- A person who files a waiver of discharge that is approved by the court
in the Chapter 7 case.
- A person who conceals, transfers, or destroys his or her property with
the intent to defraud his or her creditors or the trustee in the Chapter 7 case.
- A person who conceals, destroys, or falsifies records of his or her financial
condition or business transactions.
- A person who makes false statements or claims in the Chapter 7 case, or
who withholds recorded information from the trustee.
- A person who fails to satisfactorily explain any loss or deficiency of
his or her assets.
- A person who refuses to answer questions or obey orders of the bankruptcy
court, either in his or her bankruptcy case or in the bankruptcy case
of a relative, business associate, or corporation with which he or she
What persons should not file under Chapter 7?
A person who is not eligible for a Chapter 7 discharge should not file
under Chapter 7. Also, a person who has substantial debts that are not
dischargeable under Chapter 7 should not file under Chapter 7. In addition,
it may not be wise for a person with current income sufficient to repay
a substantial portion of his or her debts within a reasonable period to
file under Chapter 7, because the court may dismiss the case as constituting
an abuse of Chapter 7.
Where is a Chapter 7 case filed?
In the office of the clerk of the bankruptcy court in the district where
the debtor has resided or maintained a principal place of business for
the greatest portion of the last 180 days. The bankruptcy court is a federal
court and is a unit of the United States District Court.
May a husband and wife file jointly under Chapter 7?
Yes. A husband and wife may file a joint petition under Chapter 7. If a
joint petition is filed, only one set of bankruptcy forms is needed and
only one filing fee and attorney fee is charged.
Under what conditions should both spouses file under Chapter 7?
Both husband and wife should file if one or more substantial dischargeable
debts are owed by both spouses. If both spouses are liable for a substantial
debt and only one spouse files under Chapter 7, the creditor may later
attempt to collect the debt from the nonfiling spouse, even if he or she
has no income or assets.
When should a Chapter 7 case be filed?
The answer depends on the status of the debtor's dischargeable debts,
the nature and status of the debtor's nonexempt assets, and the actions
taken or threatened to be taken by the debtor's creditors. The following
rules should be followed:
- Don't file under Chapter 7 until all anticipated debts have been incurred,
because it will be another seven years before the debtor is again eligible
for a Chapter 7 discharge. For example, a debtor who has incurred substantial
medical expenses should not file under Chapter 7 until the illness or
injury has either been cured or covered by insurance, as it will do little
good to discharge, say, $50,000 of medical debts now and then incur another
$50,000 in medical debts in the next few months.
- Don't file under Chapter 7 until the debtor has received all nonexempt
assets to which he or she may be entitled. If the debtor is entitled to
receive an income tax refund or a similar nonexempt asset in the near
future, he or she should not file under Chapter 7 until after the refund
or asset has been received and disposed of. Otherwise, the refund or asset
will become the property of the trustee.
- Don't file under Chapter 7 if the debtor expects to acquire property
through inheritance, life insurance or divorce in the next 180 days, because
the property will have to be turned over to the trustee unless such property
falls under an exemption.
- If hostile creditor action threatens a debtor's exempt assets or future
income, the case should be filed immediately to take advantage of the
automatic stay that accompanies the filing of a Chapter 7 case. If a creditor
has threatened to attach a garnishee the debtor's wages or if a foreclosure
action has been instituted against the debtor's residence, it may
be necessary to file a Chapter 7 case immediately in order to protect
the debtor's interest in the property.
How does the filing of a Chapter 7 affect collection and other legal proceedings
that have been filed against the debtor in other courts?
The filing of a Chapter 7 case automatically stays (stops) virtually all
collection and other legal proceedings pending against the debtor. A few
days after a Chapter 7 case is filed, the court mails a notice to all
creditors ordering them to refrain from any further action against the
debtor. If necessary, this notice may be served earlier by the debtor
or the debtor's attorney. Any creditor who intentionally violates
the automatic stay may be held in contempt of court and may be liable
to the debtor in damages. Criminal proceedings and actions to collect
alimony, maintenance, or support from exempt property or property acquired
by the debtor after the Chapter 7 case was filed are not affected by the
automatic stay. The automatic stay also does not protect co-signers and
guarantors of the debtor, and a creditor may continue to collect debts
of the debtor from those persons after the debtor files a Chapter 7 case.
May a person file under Chapter 7 if his or her debts are being administered
by a financial counselor?
Yes. A financial counselor has no legal right to prevent anyone from filing
under Chapter 7.
How does the filing under Chapter 7 affect a person's credit rating?
It will "usually" worsen it, if that is possible. However, some
financial institutions openly solicit business from persons who have recently
filed under Chapter 7, apparently because it will be at least seven years
before the debtor can again file under Chapter 7. If there are compelling
reasons for filing under Chapter 7 that are not within the debtor's
control (such as illness or an injury), some credit rating agencies and
creditors may take that into account in rating the debtor's credit
Are the names of persons who file under Chapter 7 published?
When a Chapter 7 case is filed, it becomes a public record and the name
of the debtor may be published by some credit-reporting agencies. Note
that the fact that you have filed bankruptcy may appear in the Sunday
financial section of the local newspaper.
Are employers notified of Chapter 7 cases?
Employers are not usually notified when a Chapter 7 case is filed. However,
the trustee in a Chapter 7 case often contacts an employer seeking information
as to the status of the debtor's wages or salary at the time the case
was filed. If there are compelling reasons for not informing an employer
in a particular case, the trustee should be so informed and he or she
may be willing to make other arrangements to obtain the necessary information.
Does a person lose all of his or her property by filing under Chapter 7?
Usually not. Certain property is exempt by law and cannot be taken by creditors,
unless it is encumbered by a valid security interest. A debtor is usually
allowed to retain his or her exempt property in a Chapter 7 case. A debtor
may also be allowed to retain certain encumbered (or secured) exempt property
(see "What secured property may a debtor retain or redeem in a Chapter
7 case?" below.)
May employers or governmental agencies discriminate against persons who
file under Chapter 7?
No. It is illegal for either private or governmental employers to discriminate
against a person as to employment solely because that person has filed
under Chapter 7. It is also illegal for local, state, or federal governmental
units to discriminate against a person as to the granting of licenses
(including a drivers license), permits, student loans, and similar grants
because that person has filed under Chapter 7.
What happens after the first meeting of the creditors?
After the meeting of the creditors, the trustee may contact the debtor
regarding the debtor's property, and the court may issue certain orders
to the debtor. These orders are sent by mail and may require the debtor
to turn certain property over to the trustee, or provide the trustee with
certain information. If the debtor fails to comply with these orders,
the case may be dismissed and the debtor denied a discharge.
What is a trustee in a Chapter 7 case, and what is their role?
The trustee is an officer of the court, appointed to examine the debtor,
collect the debtor's nonexempt property, and pay the expenses of the
estate and the claims of creditors. In addition, the trustee has certain
administrative duties in a Chapter 7 case and is the officer in charge
of seeing to it that the debtor performs the required duties in the case.
A trustee is appointed in a Chapter 7 case, even if the debtor has no
When must a debtor appear in court in a chapter 7 case and what happens there?
The first court appearance is for a hearing called the "meeting of
the creditors." This hearing usually takes place about a month after
the case is filed. At this hearing the debtor is put under oath and questioned
about his or her debts and assets by the hearing officer or trustee.
What are the debtor's responsibilities to the trustee?
The law requires the debtor to cooperate with the trustee in theadministration
of a Chapter 7 case, including the collection by the trustee of the debtor's
nonexempt property. If the debtor does not cooperate with the trustee,
the Chapter 7 case may be dismissed and the debtor may be denied a discharge.
What happens to the property that the debtor turns over to the trustee?
It is usually converted to cash, which is used to pay the fees and expenses
of the trustee and to pay the claims of unsecured creditors.
What if the debtor has no nonexempt property for the trustee to collect?
If, from the debtor's chapter 7 forms, it appears that the debtor has
no nonexempt property, a notice will be sent to the creditors advising
them that there appears to be no assets from which to pay creditors and
that it is unnecessary for them to file a claim, and that if assets are
later discovered they will be given the opportunity to file claims. This
type of case is referred to as a "no-asset" case. Approximately
one-half of all Chapter 7 filings are no-asset cases.
How are "Secured Creditors" dealt with in a Chapter 7 case?
Secured creditors are creditors with valid mortgages or liens against property
of the debtor. Property of the debtor that is encumbered by a valid mortgage
or lien is called secured property. A secured creditor is usually permitted
to repossess or foreclose its secured property, unless the value of the
secured property greatly exceeds the amount owed to the creditor. The
claim of a secured creditor is called a secured claim and secured claims
must be collected from or enforced against secured property. Secured claims
are not paid to the trustee. A secured creditor must prove the validity
of its mortgage or lien and obtain a court order before repossessing or
foreclosing on secured property. The debtor should not turn any property
over to a secured creditor until a court order is obtained. The debtor
may be permitted to retain or redeem certain types of secured personal property.
How are "Unsecured Creditors" dealt with in a Chapter 7 case?
An unsecured creditor is a creditor without a valid lien or mortgage against
property of the debtor. If the debtor has nonexempt assets, unsecured
creditors may file claims with the court within 90 days after the first
date set for the meeting of the creditors. The trustee will examine these
claims and file objections to those deemed improper. When the trustee
has collected all of the debtor's nonexempt property and converted
it to cash, and when the court has ruled on the trustee's objections
to improper claims, the trustee will distribute the funds in the form
of a dividend to the unsecured creditors, according to the priorities
set forth in the Bankruptcy Code. Administrative expenses, claims for
wages, salaries, and contributions to employee benefit plans, claims for
the refund of certain deposits, claims for alimony, maintenance, support
and tax claims are given priority, in that order, for the payment of dividends
by the trustee. If there are funds remaining after the payment of these
priority claims, they are distributed pro rata to the remaining unsecured
What secured property may a debtor retain or redeem in a Chapter 7 case?
A debtor may retain and redeem certain secured personal and household property,
such as household furniture, appliances and goods, wearing apparel, and
tools of the trade, without payment to the secured creditor, if the property
is exempt and if the mortgage or lien against the property was not incurred
for the purpose of financing the purchase of that property. A debtor may
also retain and redeem without payment to the secured creditor any secured
property that is both exempt and subject only to a judgment lien. Finally,
a debtor may redeem certain exempt personal, family, or household property
by paying to the secured creditor an amount equal to the value of the
property, regardless of how much is owed to the creditor. Deadlines are
imposed on the enforcement of these rights by the debtor during the bankruptcy case.
May a utility company refuse to provide service to a debtor if the company's
utility bill is discharges under Chapter 7?
If, within 20 days after a Chapter 7 case is filed, the debtor furnishes
a utility company with a deposit or other security to insure the payment
of future utility services, it is illegal for a utility company to refuse
to provide future utility service to the debtor, or to otherwise discriminate
against the debtor, if is bill for utility service is discharged in the
Chapter 7 case.
What should the debtor do if he or she moves before the Chapter 7 case
The debtor should immediately notify the bankruptcy court in writing of
the new address. Because most communications between a debtor and the
court are by mail, it is important that the bankruptcy court always have
the debtor's current mailing address. Otherwise, the debtor may fail
to receive important notices and the chapter 7 case may be dismissed.
Many courts have change of address forms for debtors to use when they
move, and the debtor should obtain one if a move is planned.
How is a debtor notified when his or her discharge has been granted?
Usually by mail. Most courts send a form called "Discharge of Debtor"
to the debtor and to all creditors. This form is a copy of the court order
discharging the debtor from his or her dischargeable debts, and it serves
as notice that the debtor's discharge has been granted. It is usually
mailed about four months after a Chapter 7 case is filed.
What if a debtor wishes to repay a dischargeable debt?
A debtor may repay as many dischargeable debts as desired after filing
under Chapter 7. By repaying one creditor, a debtor does not become legally
obligated to repay any other creditor. Then only dischargeable debt that
a debtor is legally obligated to repay is one for which the debtor and
the creditor have signed what is called a "reaffirmation agreement."
If the debtor was not represented by an attorney in negotiating the reaffirmation
agreement with the creditor, the reaffirmation agreement must be approved
by the court to be valid. If the debtor was represented by an attorney
in negotiating the reaffirmation agreement, the attorney must file the
agreement and the attorney's statement with the court in order for
the agreement to be valid. If a dischargeable debt is not covered b a
reaffirmation agreement, a debtor is not legally obligated to repay the
debt, or has waived the discharge of the debt.
How long does a Chapter 7 case last?
A Chapter 7 case begins with the filing of the case and ends with the closing
of the case by the court. If the debtor has no nonexempt assets for the
trustee to collect, the case will most likely be closed shortly after
the debtor receives his or her discharge, which is usually about four
months after the case is filed. If the debtor has nonexempt assets for
the trustee to collect, the length of the case will depend on how long
it takes the trustee to collect the assets and perform his or her duties
in the case. Most consumer cases with assets last about six months, but
some can last considerable longer.
What should a person do if a creditor later attempts to collect a debt
that was discharged under Chapter 7?
When a Chapter 7 discharge is granted, the court enters an order prohibiting
the debtor's creditors from later attempting to collect any discharged
debt from the debtor. Any creditor who violates this court order may be
held in contempt of court and may be liable to the debtor in damages.
If a creditor later attempts to collect a discharged debt from the debtor,
the debtor should give the creditor a copy of the order of discharge and
inform the creditor in writing that the debt has been discharged under
Chapter 7. If the creditor persists, the debtor shouldcontact an attorney.
If a creditor files a lawsuit against the debtor on a discharged debt,
it is important not to ignore the matter, because even though a judgment
entered against the debtor on a discharged debt can later be nullified,
such may require the services of an attorney, which could be costly to
What is the role of the attorney for a consumer in a Chapter 7 case?
The debtor's attorney performs the following functions in the Chapter
7 case of a typical consumer debtor:
- Analyze the amount and said nature of the debts owed by the debtor and
determines the best remedy for the debtor's financial problems.
- Advise the debtor of the relief available under both Chapter 7 and Chapter
13 of the Bankruptcy Code, and of the advisability of proceeding under
- Assemble the information and data necessary to prepare the Chapter 7 forms
- Prepare the petitions, schedules, statements, and other Chapter 7 forms
for filing with the bankruptcy court.
- Assist the debtor in arranging his or her assets so as to enable the debtor
to retain as many of the assets as possible after the Chapter 7 case.
- Filing the Chapter 7 petitions, schedules, statements, and other forms
with the bankruptcy court, and, if necessary, notifying certain creditors
of the commencement of the case.
- If necessary, assisting the debtor in reaffirming certain debts, redeeming
personal property, setting aside mortgages or liens against exempt property,
and otherwise carrying out the matters set forth in the debtor's statement
- Attending the meeting of the creditors with the debtor and appearing with
the debtor at any other hearings that may be held in the case.
- If necessary, preparing and filing amended schedules, statements, and other
documents with the bankruptcy court in order to protect the rights of
- If necessary, assisting the debtor in overcoming obstacles that may arise
to the granting of a Chapter 7 discharge.