What is Chapter 7 Bankruptcy?


Chapter 7 is designed as an orderly, court-supervised procedure by which a trustee collects the assets of the debtor’s estate, reduces them to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors. (Visit your state bankruptcy page listed below to learn your specific exemptions.) Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. These cases are called “no-asset cases.” Usually a debtors with assets that they wish to keep and that are not covered by exemptions file chapter 13 bankruptcy.

A creditor holding an unsecured claim will get a distribution from the bankruptcy estate only if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. In most chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts. The debtor normally receives a discharge three to four months after the petition is filed.