A chapter 7 Bankruptcy is one of the remedies available to an individual overburdened by debt under Title 11 of the U.S. Code. A chapter 7 Bankruptcy involves the selling of non-exempt assets to pay off a debtor’s debts (or at least, paying off as much debt as the assets will allow before discharging the rest). In this type of bankruptcy proceeding, a trustee is appointed by the Court to pay off creditors of the debtor’s estate by selling his or her property. This trustee can be either an individual or a corporation. The main role of the trustee is to collect and sell the property of the estate and to use the proceeds to pay off debts. After the trustee has paid off secured claims, the trustee distributes the rest of the proceeds of the estate to pay off claims in a specified order.

Some assets may be exempt from this process. Chapter 7 bankruptcies are not entitled to everyone, and the court applies what is known as a “means test” to applicants to determine if they are able to discharge their debts by other means. For example, if the debtor has a regular source of income, the Court may determine that a Chapter 13 bankruptcy proceeding is a more appropriate proceeding.

A chapter 7 bankruptcy will normally result in, essentially, and “erasing” of pre-bankruptcy debts, but this is not guaranteed in all cases.

Starting a bankruptcy case creates what is called a “bankruptcy estate,” which consist of all legal or equitable interests of the debtor as of the start of the case (in simpler terms, virtually all of the money and property you have). Post-filing earnings for the individual, spendthrift trusts, and ERISA plans are not the subject of the estate, but everything else can become the part of the estate. As a general rule, any property the debtor may have is considered to be the part of the Bankruptcy Estate, and then items may be exempted out of the estate.

The filing of the bankruptcy petition and establishment of the Bankruptcy Estate creates what is known as an “Automatic Stay,” which prevents certain debt collection efforts. The debtor must also complete a course in personal financial management. Once the filing fee is paid, the course is complete, and the debtor qualifies for a chapter 7 bankruptcy, all dischargeable debts will be discharged. But it should be known that some debts cannot be discharged even through a chapter 7 bankruptcy, namely tax debts, divorce related debts, and most student loan debts.


A chapter 13 Bankruptcy is also available to people overburdened by debt, but involves restructuring the debt to make it payable by the debtor (as opposed to the Chapter 7 bankruptcy described above, where a debt is essentially erased through liquidation). A chapter 13 Bankruptcy is initiated by filing a petition seeking a chapter 13 bankruptcy proceeding in federal district court.

Sometimes applicants who do not meet the “means test” for a Chapter 7 bankruptcy are still eligible for a Chapter 13 bankruptcy. This form of bankruptcy proceeding is only available to a debtor with regular income that has unsecured debts less than $290,525.00, and secured debts less than $871,550.00.

This form of bankruptcy proceeding allows debtors to keep certain valuable assets like his or her house and other property. The debtor proposes a plan to pay back his or her debts (usually over a five year term), and at a hearing the Court approves or denies the applicant’s proposed payment plan. While this plan is in place, the debtor receives protection from certain debt collection efforts (like wage garnishment and related lawsuits).

If the Court approves of the debtor’s proposed payment plan, and finds that the debtor will be able to follow the plan, then the Court may approve the plan and the plan will be effective.

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