What is Chapter 7 Bankruptcy

• The purpose of bankruptcy is to allow a person who is overburdened with debt to start over financially. Chapter 7 bankruptcy is also referred to as straight bankruptcy. It involves a liquidation of non-exempt assets. Unsecured debts can be erased by chapter 7 bankruptcy. It can also stop foreclosure proceedings, collection proceedings, wage garnishments, repossessions and the shutting off of utilities. Some types of unsecured debt cannot be erased by chapter 7 bankruptcy, such as child support payments, alimony, student loans, debts you incurred on the basis of fraud, income tax debt and debt resulting from personal injury or death caused by drunk driving.
  
  

How Chapter 7 Bankruptcy Works

• Bankruptcy counseling from a government-approved organization is required within six months of filing for bankruptcy. Filing for bankruptcy typically costs around $300 plus lawyer's fees, which may vary from state to state. In certain instances, if your income falls below the poverty level, the court may waive the bankruptcy fees. When you file for chapter 7 bankruptcy, you must turn over to the court a schedule of assets and liabilities, income and expenditures, a statement of finances and a list of contracts and unexpired leases.
  
  Within 20 to 40 days of filing chapter 7 bankruptcy, a meeting is held with creditors where the debtor must attend the meeting and answer questions regarding her financial affairs. Non-exempt assets are sold, and the money is turned over to your creditors. A trustee is appointed to release the funds from the liquidation of assets to the creditors.
  
  

Exempt Assets

• Property exempt from being liquidated in chapter 7 bankruptcy varies according to individual state laws. The law of your home state will be applied in bankruptcy proceedings. As a general rule, you are allowed to keep your place of residence, clothing, pets, jewelry, household furnishings, automobiles and work-related equipment.
  
  

Warnings

• Chapter 7 bankruptcy is not an "easy fix" to debt problems. You will lose your non-exempt assets and may have difficulty in purchasing such items as homes or vehicles. A business may not be willing to allow you to make installment payments on items when you are involved in bankruptcy proceedings. There can be stiff penalties for individuals who establish debt and do not repay it after having filed bankruptcy.