Chapter 7 Bankruptcy

Often referred to as “straight bankruptcy,” Chapter 7 bankruptcy is a process, organized under federal law, that provides consumers with the opportunity to discharge their unsecured debts. Common debts eliminated by filing for Chapter 7 bankruptcy include: credit cards, medical bills, personal loans and mortgage debts. When a Chapter 7 case is filed, all of the debtor’s property is temporarily under supervision of the bankruptcy court and a case trustee. Property that is considered “exempt” is retained by the debtor; conversely, property that is “nonexempt” is subject to sale by the bankruptcy trustee with the proceeds distributed to creditors. It is important to note that as a practical matter, most people are able to shed their unsecured debts through Chapter 7 with out losing any property. A typical Chapter 7 bankruptcy case usually lasts between 4 to 5 months. At the end of the process, the bankruptcy court issues a discharge that operates as a permanent injunction preventing creditors from seeking to collect on debts that were included in the bankruptcy.