Straight Bankruptcy Liquidation
Obtain mandatory credit counseling within 180 days before filing bankruptcy petition. File bankruptcy petition with court. Trustee appointed to administer bankruptcy. All non-exempt assets surrendered for liquidation and distribution. Debtor retains only exempt assets. Money from liquidation is split among creditors, according to priority established by the Bankruptcy Code.
Debtor must pass the “means test” which determines eligibility for Chapter 7. People with incomes higher than state median income will have difficulty being eligible for Chapter 7. Discharge not available if debtor was discharged in Chapter 7 bankruptcy within past eight years.
Percentage of consumer filings
71.2%. There were 1,597,462 consumer bankruptcy filings in 2004 and 1,137,958 were Chapter 7 filings.
Can be used effectively only if not used to completion during previous eight years. New law may make it harder to file Chapter 7 for many people.
Effect on debts
With exceptions noted in text (e.g., student loans, support obligations, taxes), most pre-petition debts are discharged (extinguished) upon conclusion of bankruptcy. Liability to creditors ends with court-entered discharge order.
Effect on home
In all cases, you must keep up with mortgage payments to preserve your home. If you do, home may be preserved under homestead exemption if there is not substantial non-exempt equity. Marital ownership law may also preserve home.
However, new law provides for maximum homestead exemption of $125,000 if home acquired 40 months before filing or if debtor engaged in certain fraudulent conduct.
Effect on car or truck
Vehicle might be taken by creditors (unless necessary for work or arrangements are made to pay off lien by redemption or reaffirmation).
Effect on nonexempt assets
All non-exempt assets must be surrendered for distribution
Time to repay
Most forms of debt discharged; however other debts, such as taxes, student loans, and child support, will have to be paid.
Portion of debt repaid
Will depend on the value of non-exempt assets surrendered to pay off debts.
Result at conclusion of bankruptcy
Bankruptcy court enters a discharge order, ending enforceability of all pre-petition debts that can be discharged in bankruptcy.
Requirement for bankruptcy proceedings to end
Court must have entered a discharge order.
Effect on credit
Record of bankruptcy remains on credit record for up to ten years from the date of filing.