Are All Creditors Entitled to be Paid in a Chapter 7 Filing?

All Chapter 7 creditors are not entitled to be paid in a Chapter 7 bankruptcy.  Under the Bankruptcy Code, a Chapter 7 debtor may wipe out most of his unsecured debts, including: 

• Credit card debt;
• Medical bills;
• Personal loans; and
• Certain tax debts. 

Moreover, if a Chapter 7 debtor is willing to surrender property that is the collateral for a secured debt, that debt will also be wiped out.  However, if a debtor wishes to keep such property, he must either continue making voluntary payments, reaffirm the debt, or redeem the property. 

Who Qualifies for Chapter 7 Relief?

To qualify for Chapter 7 debt relief, a debtor must pass either the median income or means tests.  The median income test requires a debtor to demonstrate that his household income is less than or equal to median income for a household of the same size in his state.  If a debtor passes the means test he is eligible for Chapter 7 debt relief. 

If a debtor is unable to pass the median income test, in order to be eligible for Chapter 7 relief, he must pass the means test by demonstrating that filing a Chapter 7 case does not amount to an abuse of the bankruptcy process.  There is a presumption of abuse if the debtor has more than $166.67 in net monthly disposable income available for distribution to unsecured creditors or more than $10,000 in projected income over five years available for distribution to unsecured creditors. 

Chapter 7 Bankruptcy Process

A debtor initiates a Chapter 7 bankruptcy case by filing a Chapter 7 petition and the required bankruptcy schedules.  All debtors must complete a pre-bankruptcy counseling course not more than 180 days prior to the filing of the bankruptcy petition.  The certificate of completion for the course must be filed with the bankruptcy petition along with the debtor’s pay stubs or payment advices for the 60 day period immediately preceding the bankruptcy filing. 

Within about 30-45 days of filing bankruptcy, all Chapter 7 debtors must attend the Meeting of Creditors.  The Meeting of Creditors is conducted by the bankruptcy trustee and usually takes about 10 minutes.  At the Meeting of Creditors, the bankruptcy trustee and any creditors who may be present will question the debtor about his financial situation and the contents of his bankruptcy petition. 

If the bankruptcy trustee is satisfied that the debtor has no assets which may be liquidated in order to pay unsecured creditors, he will abandon his interest in the bankruptcy estate.  Most Chapter 7 debtors receive a discharge within approximately 90 days of filing bankruptcy. 

Get Legal Help

If you have questions about Chapter 7 bankruptcy or received a Chapter 7 discharge and are still be hassled by your creditors, you should speak with a qualified bankruptcy attorney.  A bankruptcy attorney can answer all your questions and advise you of the best course of action.