Chapter 7 — “Liquidation”

I don't believe there is really any way to adequately summarize Chapter 7 bankruptcy in a brief web page. One of the many reasons to hire an attorney to assist you with filing your bankruptcy is so that you can receive explanations of how your bankruptcy will work. However, the purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. Although most or all of what most people in bankruptcy is "exempt" — which means that it cannot be seized for the benefit of creditors that do not have a lien on your property — any property that can be taken will be liquidated (which is why this is called a "liquidation") for the benefit of those creditors, and that, typically is all the creditor will get. Essentially, in a Chapter 7 bankruptcy, a debtor lets the court know that they can't pay their debts, turns out their pockets, and obtains a discharge.

With respect to creditors who have a lien or a mortgage, the most commonly used options are to either agree to continue to pay the creditor as was originally agreed and to keep the property; or to agree to surrender the property and not pay the creditor.

Some debts are not dischargeable, including most taxes and student loans, debts owed to a former spouse in connection with a divorce, most criminal restitution obligations, and debts that arose from fraud or from wilful injury.

It is vitally important that you not do any "pre-bankruptcy planning" without obtaining the advice of a competent bankruptcy attorney: Don't make transfers of any property to "get ready" to go bankrupt. Giving your '63 Corvette to your brother-in-law so the bankruptcy judge doesn't know about it is a good way to not only lose all benefit of your bankruptcy but possibly even to find yourself in prison. Don't do it.

How Much Does It Cost?

I typically charge a base fee of $1150 for ordinary consumer bankruptcies under Chapter 7. We must also usually pay a filing fee of $338 to the Bankruptcy Court, for a typical total cost of $1485. A copy of my ordinary fee agreement is here.