We received a lot of positive feedback from our frequently asked questions about our Chapter 11 bankruptcy article. We thought we’d extend that idea to the most common bankruptcy, Chapter 7. There are a lot of myths and misunderstandings attached to chapter 7 bankruptcy. We would like to dispel those myths and answer your questions in the process.

What is Chapter 7 Bankruptcy?

Chapter 7, on its surface, is perhaps the simplest type of bankruptcy to wrap your head around. When an individual files for chapter 7 bankruptcy they are trying to discharge (or erase their liability) most, if not all, of their pre-bankruptcy debts.

To put it simply, the goal of Chapter 7 Bankruptcy is to get a “clean slate” and “fresh start.” This is done through a discharge of your debts.

Who is Eligible for Chapter 7 Bankruptcy?

Eligibility for Chapter 7 Bankruptcy is primarily based upon household income and household size.  A “median income” based on household size determines whether you qualify for Chapter 7 or must file a Chapter 13 reorganization.  This calculation is based in part on the last 6 months from all sources of household income, and your household size including dependents.  

How Does Chapter 7 Bankruptcy in Massachusetts Work?

First, you must file a bankruptcy petition in court.  This includes, but is not limited to, the following paperwork:

  • Schedule of your liabilities as well as assets;
  • Monthly income and expenses;
  • Statement of Financial Affairs (includes questions on recent financial history).

chapter 7 law

How Can a Business Benefit from Chapter 7 Bankruptcy?

Businesses do not receive a discharge of debt like an individual would in Chapter 7 Bankruptcy. However, in limited circumstances, it can still be advantageous for a business to file for Chapter 7 Bankruptcy if:

  • an automatic stay of debt collection will allow you to streamline closing down your business;
  • puts a halt on pending lawsuits; and
  • a Chapter 7 trustee will take over winding down the business in an orderly fashion.

There are other options available to businesses, including workouts and Assignment for Benefit of Creditors that may fit your business’ needs.  Our attorneys can review all of your business’ options with you if you are looking to wind down your company.

Who/What is a Chapter 7 Bankruptcy Trustee?

A Chapter 7 trustee is a private individual appointed by the United States Trustee’s Office to administer your case through the Chapter 7 Bankruptcy process.  You will be required to appear in front of the Trustee and testify as to the information filed with the Bankruptcy Court.  The Trustee is also the person charged with administering any of your assets not protected by law.

Will the Bill Collection Stop?

Yes, once Chapter 7 Bankruptcy has been filed, collectors will be notified by the Bankruptcy Court.  Upon filing, a court order called the “Automatic Stay” goes into effect immediately as to all creditors.

What Assets Are Exempted from Chapter 7 Bankruptcy?

Under bankruptcy law, you are allowed to “exempt,” or protect certain assets that Congress has deemed necessary for you to receive a fresh start.  In Massachusetts, you may choose between the Federal Exemptions and the Massachusetts Exemptions.  Examples of exempt assets are as follows (amounts available differ under Federal and Massachusetts law):

  • homestead for the real estate you reside in as your principal residence;
  • one automobile;
  • furniture;
  • clothing;
  • tools of the trade (tools needed for your profession);
  • retirement accounts (401k, IRA);
  • your right to receive certain benefits, such as Social Security or Worker’s Compensation

What Debts Are NOT Discharged by Chapter 7 Bankruptcy?

While Chapter 7 Bankruptcy can discharge much of your debt, there are some types of debt that will not go away:

  • most taxes accrued in the last 3 years;
  • alimony or child support obligations;
  • most student loans;
  • certain personal injury or wrongful death claims accrued due to a DUI;
  • debts due to malicious and willful injury.

How long does it take to complete a Chapter 7 Bankruptcy?

Typically from the date of filing to the date the case is close it will take approximately 120 days.   In most cases which are considered no asset proceedings the Debtor obtains their discharge of debt 60 days after the date set for their first meeting of creditors and then 30 days after the date of entry of discharge the case is closed.   

Are you considering Chapter 7 Bankruptcy? Don’t become overwhelmed by the intricacies of the bankruptcy process. Reach out to us today for a consultation.