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Chapter 7 Bankruptcy

When a consumer files Chapter 7 bankruptcy, they will go into court to declare that they are unable to service the debt that they carry. Known as liquidation bankruptcy, Chapter 7 will discharge all of a consumer's unsecured debt. This is accomplished by turning over all non-exempt property to a trustee who will sell the items and use the proceeds to pay the consumer's creditors.

Most Chapter 7 bankruptcy cases don't actually require the debtor to surrender any property. Secured debt, such as car loans or mortgages, must be reaffirmed (take it out of the bankruptcy) for the consumer to keep the item that is used to secure the debt.

About 90 days after the case is filed, the consumer will be granted a discharge and will no longer owe the debt.

While a Chapter 7 consumer bankruptcy is simple in theory, there are a number of factors to consider:

  • First a consumer must qualify by going through a mandated "Means Test" that is used to determine how much disposable income would be available to pay creditors.
  • Second, not all debt can be discharged in a Chapter 7 bankruptcy. Debts arising from taxes, student loans, alimony, child support, drunk driving or intentional acts are not eligible for discharge.

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