CHAPTER SEVEN
BANKRUPTCY

Overview

Chapter 7 bankruptcy is a total liquidation of the bankruptcy estate.  
In this type of bankruptcy, the Chapter 7 Trustee will gather up all non-exempt property owned by the debtor to pay the creditors that file a valid and timely proof of claim.  The debtor is entitled to keep all exempt property.  There are certain types of debt that cannot be discharged in bankruptcy, but for the most part, credit card debt, personal loans, and unsecured bills are discharged in a Chapter 7.

Assets

You may keep such exempt assets like your home or your car, however if either is subject to a lien, it is likely you will have to keep paying this debt to avoid repossession or foreclosure.  Though a creditor cannot foreclose or repossess any property in an active bankruptcy,  a creditor may ask the bankruptcy court to lift the automatic stay so that a repossession or foreclosure can continue.   Alternatively, the debtor can reaffirm the debt (in a Reaffirmation Agreement) secured by the debtor’s home or car under either the same terms or newly negotiated terms. 

Requirements

A debtor cannot have been dismissed from bankruptcy in the previous 180 days; and must either (1) have an income less than the median income of a household of your size in the state of Texas; or (2) must not have disposable income—income that can be used to pay unsecured creditors—in excess of $12,475 as it is calculated under the Means Test.

Time

A Chapter 7 bankruptcy takes approximately 3 to 6 months on average to complete and receive a discharge.  A Chapter 7 remains on your credit report for up to 10 years, and will affect your access to credit for that time.