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Everything you need to know before choosing Chapter 7 bankruptcy

If a debtor’s income is sufficient, they probably will not be able to file for Chapter 7 bankruptcy. This is a method for people who are drowning in debt. These people might consider out-of-court options before they file for bankruptcy.

However, when out-of-court options will not do the job, people in debt can turn to Chapter 7 bankruptcy.

Chapter 7 bankruptcy

Chapter 7 is different than Chapter 13 because it does not require the filing of a repayment plan. Instead, a trustee gathers non-exempt property and sells it to repay creditors part of what they are due. Part of the debtor’s property may still have liens. However, debtors can keep their exempt property and discharge the rest of their debt.


Debtors begin this process by filing for Chapter 7 bankruptcy in the courts where they live. They must submit documentation of their assets, current income, financial affairs and contracts or leases. The court will assign a case trustee, who debtors then need to give their tax returns.

Then, individuals will need to file a few more key documents. They must show that they went to debt counseling, provide the repayment plan they developed in their course, prove their income, predict any changes in income and offer information about student loans. Married couples may file for bankruptcy jointly. However, they still need to fill out these individual forms separately.

Chapter 7 bankruptcy grants debtors a discharge. That means creditors can no longer take action to try to collect their debts. However, the court does not discharge all debts through this. Bankruptcy courts cannot discharge any from civil, tax or criminal court. Because of how confusing this process can be, debtors might want to help to navigate it without making themselves liable to fraud charges.


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