Chapter 7
Debt Relief Through Liquidation
Chapter 7 bankruptcy is a legal process designed to eliminate most unsecured debts and provide individuals with a fresh financial start. Often called "liquidation bankruptcy," it allows qualifying individuals to discharge debts like credit cards, medical bills, and personal loans while potentially keeping exempt assets such as your home and vehicle. The process typically takes 3-6 months, requires credit counseling, and stays on your credit report for 10 years. While Chapter 7 can provide immediate relief from creditor harassment and debt collection, not all debts can be eliminated, including student loans, recent taxes, and child support. Qualification is determined through a means test comparing your income to state medians and evaluating disposable income after reasonable expenses.
Pros
- Eliminate most unsecured debts
- Quick process (3-6 months)
- Keep future income
- Immediate stop to collections
- Many assets can be protected through exemptions
- No minimum debt requirement
Cons
- Impact on credit score for 10 years
- May lose non-exempt property
- Not all debts can be discharged
- Cannot file again for 8 years
Qualifications
Bankruptcy qualification requires proof of insufficient income for debt repayment through documented monthly income and reasonable living expenses. California's high cost of living often supports qualification, but all expenses must be legitimate.
The Means Test compares your six-month average income to state medians. If below, you qualify for Chapter 7; if above, qualification depends on remaining disposable income after deducting allowed expenses.
You are not legally able to file Chapter 7 bankruptcy if you had a previous Chapter 7 bankruptcy discharge within the past 8 years, or a Chapter 13 bankruptcy discharge within the past 6 years. The filing period starts the date your previous bankruptcy was filed, rather than when the bankruptcy was discharged.
Prior bankruptcy cases dismissed within the last 180 days due to court order violations, system abuse, fraud, or voluntary dismissal after a creditor's stay relief request will disqualify you from filing Chapter 7 bankruptcy.
Bankruptcy filing requires completion of credit counseling from an approved agency and a two-hour financial management course within 180 days of discharge. Failure to complete these requirements will result in case dismissal.
Provide accurate financial disclosures
The Process
- 1Complete Credit Counseling
- 2Gather Financial Documents
- 3File Bankruptcy Petition
- 4Attend Creditors Meeting
- 5Complete Financial Management Course
- 6Receive Discharge
Timeline
3-6 Months
