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Chapter 7 Bankruptcy Law and Rules

Chapter 7 Bankruptcy Law and Rules

Who is eligible to file for Chapter 7 bankruptcy?

If you're deeply in debt, harassed by creditors and worried that your wages are going to be confiscated, Chapter 7 bankruptcy might be the answer to your problem. The most common form of bankruptcy, Chapter 7 is filed by individuals who need to stop creditors quickly in the matter of resolving debt. Known as consumer bankruptcy, Chapter 7 can resolve situations that arise due to unemployment, emergency medical expenses, or badly over extended credit.

Chapter 7 bankruptcy is a liquidation proceeding, meaning that the court sells, or liquidates, all of the debtor's non-exempt property in order to pay off their debts. Some of the debt may be considered dischargeable by the court, and is simply erased from the debtor's responsibility. This non-secured debt includes credit card and store card debt, personal loans, medical bills and past due rent.


Not all debt is dischargeable, however. There are certain debts that cannot be cleared by the courts under Chapter 7 rules. Student loans, DWI fines, criminal fines, alimony, unpaid child support and taxes are considered non-dischargeable.

The decision to file Chapter 7 bankruptcy is not to be taken lightly, as there are consequences. Although you may prevent your creditors from taking immediate collective action against you, you risk sacrificing your credit rating for the next decade or so. Federal law mandates that the filing stays on your credit report for up to ten years, making it difficult to apply for a mortgage, a new car, even credit cards. However, there are steps that can be taken to begin improving your post bankruptcy credit score, and there are certain lenders who will take on a high risk client, something bankruptcy will force you to consider.

Not everyone can file for Chapter 7. To be eligible you must rent or own property, a home or place of business in the United States . You are ineligible to file if you completed a successful Chapter 7 bankruptcy in the past six years or if you had a bankruptcy filing dismissed by the court in the last 180 days. The court may also decide not to grant Chapter 7 if they find it unjust to do so. This is applicable in situations where the debtor was clearly careless with the money, or attempted to defraud creditors.

Sometimes the court will reject the Chapter 7 filing because the debtor clearly fits the eligibility requirements of another bankruptcy chapter.