Chapter 7 – Liquidation or Straight Bankruptcy

A filing under Chapter 7 refers to or called as liquidation or straight bankruptcy and is the most common type of bankruptcy proceedings in United States. With reference to chapter 7, a debtor is allowed to exempt (or keep) all or a certain portion of his or her property. In most of the cases under chapter 7, the debtor keeps all his property with him. However, the actual amount that can be retained which is the exempted amount from a specific debtor is determined by the market value of the debtor’s property.

Generally the property that a debtor is allowed to keep is called exempt property and property that the debtor is not entitled to keep is termed as non-exempt property. A trustee, precisely called the Chapter 7 Trustee, is appointed by the bankruptcy court to collect the non-exempt property of the debtor. He sells the property and distributes the sale proceeds to creditors. However, the vast majority of Chapter 7 bankruptcies are no-asset bankruptcies, meaning such cases in which the debtor is allowed to keep all of his or her property and nothing is distributed to creditors by means of selling it off.

The most important qualifying fact in determining your eligibility for filing a Chapter 7 Bankruptcy is to summarize whether your monthly income exceeds your monthly expenses. If this is the case then you may have too much of a disposable income to remain in Chapter 7.

For those who are seriously considering about filing a Chapter 7 bankruptcy, eligibility is usually not a problem. However with the new Bankruptcy law that became effective on October 17, 2005, made significant changes in governing an individual’s eligibility to file for Chapter 7 Bankruptcy relief.