Chapter 7 liquidation is a process usually designed to eliminate unsecured, nonpriority debts. Unsecured debt means there is no collateral for the loan and priority debt is generally things like taxes, child support and alimony. Unsecured, nonpriority debts that are forgiven in this type of bankruptcy are generally credit cards, medical bills and bank or finance company loans.

If you have a loan that is secured by collateral, such as a mortgage secured by your home or a car loan secured by your vehicle, you generally must choose to continue making these payments under the original agreements or surrender the collateral. Unfortunately, we can’t keep a house or a car and eliminate the debt that is secured by the collateral.

In order to qualify for Chapter 7 liquidation as an individual you must show the court that you are insolvent. This means that we show your household budget does not have any money left over even after elimination of the unsecured debt payments. If your household budget does have money left over (referred to as “disposable income”), then you generally are not eligible for this type of relief. The basic idea is that you must show that by the time you pay your necessary bills (rent, electric, food, gas, cell phone, etc.) there is no money left to pay your unsecured debts.

A business may also file a Chapter 7 case to provide for an orderly wind-down of the business upon closing. A business will cease to exist in this process. If there is personally guaranteed debt, then the individual that guaranteed the debt will still be liable for the obligations after the business’ liquidation and we need to address this exposure as part of the overall strategy.

Chapter 7 is a liquidation, and you must be very careful if you seek relief under this version of bankruptcy to make certain that all of your property is protected. If you own something that is more valuable than the amount you are allowed to protect under the relevant statute, this asset may be taken by the Chapter 7 Trustee and sold to provide a financial distribution to your creditors. We will work with you to make certain that this is a safe path before we file a case under this chapter of the Bankruptcy Code.

This is a basic summary of Chapter 7, there are several other aspects to this type of bankruptcy case that we must consider before we proceed under Chapter 7. Please schedule a free, confidential consultation to discuss your unique situation.

Please remember that this is a very basic description of bankruptcy law and not legal advice. We can discuss your situation in detail during a free, confidential consultation with an attorney who will explain how bankruptcy law fits your specific situation. Contact us today at www.meredithlawfirm.com to schedule an appointment at your convenience. We are a debt relief agency.