What Does Chapter 7 Involve?

Legal Tips and Resources

By the time most people file for bankruptcy, they may be experiencing the following:

  • Incessant calls from debt collectors
  • Imminent foreclosure
  • Suspended utilities
  • Poor credit scores

Chapter 7, bankruptcy, provides relief for individuals with limited income who can not manage their debt. It involves these steps.

Means Test

Filing for Chapter 7 bankruptcy starts with taking a two-step means test. First, you must show that your total household income is below your state’s median income. Second, you must show how much disposable income you have available to pay your debts after accounting for necessary living expenses.

Court Filing

After qualifying for Chapter 7, you must proceed with a formal court filing. Once this happens, the bankruptcy will immediately appear on your credit report, and your creditors will cease their collection efforts.

Appointment of a Trustee

The court will appoint a trustee to liquidate your assets and pay your creditors. You must supply your trustee with tax statements, bill copies and any documents reflecting your debts to determine which ones might be covered by asset liquidation and which might be discharged.

Exempt Assets

Chapter 7 allows you to keep some essential property, including your house, car and work equipment. The state in which you live determines what you may retain if you pledge to continue installment payments. Alternatively, you can liquidate or surrender these items if they are not already named them as collateral. Wedding rings and income, including that from federal programs, divorce settlements or personal injury damages, are exempt from consideration.

Non-Exempt Assets

Some assets are not eligible for an exemption. These include:

  • Art
  • Musical instruments
  • Furnishings
  • Jewelry
  • Additional cars and homes
  • Investment accounts

There are exceptions, including retirement funds or professional musicians’ instruments. Some states also allow you to keep one category of typically non-exempt items.

Creditor Meeting

The trustee arranges a meeting with your creditors to discuss your debt discharge or payment after asset liquidation. The court grants a cancellation of your unsecured debts if creditors do not file a lawsuit for collection within sixty days of this meeting.


All individuals who file for Chapter 7 bankruptcy must complete a debt education course in-person or online. The court grants an official debt discharge only when it receives a valid certificate of course completion.

Mandatory Payments

Some debts are obligatory despite a bankruptcy. These include child support, student loans, and income taxes; however, Chapter 7 frees up money for these essential payments by eliminating other debts.

If you are ready to file for bankruptcy but are unsure if you qualify for Chapter 7, an experienced bankruptcy lawyer in Cypress, TX, like from Winfrey Law Firm, PLLC, can help you understand your options.