Chapter 7 Bankruptcy

Myth: If I file Chapter 7 bankruptcy, all of my property will be sold off to pay my debts.

Fact: While Chapter 7 bankruptcy is commonly called “liquidation” bankruptcy, in almost all personal bankruptcy cases filed in Texas, debtors are allowed to keep their property either because the property is exempt from seizure or it is so low in value that the trustee will elect to abandon it.

What is Chapter 7 bankruptcy?

A bankruptcy filing under Chapter 7 allows individuals to eliminate most unsecured debts (debts that are not secured by tangible assets such as your home and your car). A bankruptcy attorney can explain the difference between secured and unsecured debts.

The main reason for filing any bankruptcy case is to obtain a “discharge” or release of debts. In a Chapter 7 case, the debtor is not required to pay any of the debts owed to most unsecured creditors. However, you may elect to reaffirm (remain personally liable to pay) specific debts for secured assets you want to keep.

In the vast majority of all consumer Chapter 7 bankruptcy cases, the debtor will keep all property and eliminate most debts. The entire process is normally over, and the case is closed, within approximately four months after it is filed.

When is Chapter 7 bankruptcy a good option for me?

Chapter 7 bankruptcy is a good option to consider if you:

Are current on all debts secured with collateral you want to keep (such as home mortgages and vehicle loans)
Have an unmanageable amount of unsecured debt

With certain exceptions, Chapter 7 bankruptcy allows people to obtain relief from personal loans, credit card debts, deficiency claims on repossessed vehicles or foreclosed real estate, auto accident claims, judgments, business debts, leases, personal guaranties, and negligence claims. Chapter 7 bankruptcy may also allow you to obtain forgiveness for certain tax debts such as income tax claims and the employer’s portion of payroll taxes for tax years more than three years old, but only if the tax returns for those tax years were filed more than two years before the bankruptcy case is filed.

After the bankruptcy is over, you are legally entitled to selectively pay any, all, or none of your dischargeable debts. However, you cannot be legally compelled to pay any discharged debt. Creditors are legally required to stop all collection efforts, including all collection calls, letters, lawsuits, and garnishments.

How do I file Chapter 7 bankruptcy?

A debtor begins the bankruptcy process by filing a petition with his or her local bankruptcy court. Once the petition is filed, an automatic stay goes into effect and your creditors are prohibited from making any attempt to collect their debt, including attempting foreclosure and repossession.

Free Consultation: Contact Board Certified bankruptcy attorney Fred E. Walker in Austin, Texas, for a debt relief consultation. There is no cost or obligation.