Chapter 7 bankruptcy is a type of bankruptcy that is designed to provide relief to individuals who are unable to pay their debts and have little to no disposable income. This type of bankruptcy is also known as "straight bankruptcy" or "liquidation bankruptcy."
In Chapter 7 bankruptcy, the debtor's non-exempt assets are sold off to pay off their creditors, and then most or all of their remaining debts are discharged, meaning that they are no longer legally responsible for paying them.
To file for Chapter 7 bankruptcy, the debtor must pass a means test, which compares their income to the median income in their state. If the debtor's income is below the median income, they may be eligible to file for Chapter 7 bankruptcy. If their income is above the median income, they may still be able to file for Chapter 7 bankruptcy, but they will need to meet certain requirements and demonstrate that they have little to no disposable income.
Once a debtor files for Chapter 7 bankruptcy, an automatic stay goes into effect, which prohibits creditors from taking any collection actions, such as calling or sending letters to the debtor, garnishing wages, or foreclosing on a property.
It is important to note that not all debts are dischargeable in Chapter 7 bankruptcy. For example, certain types of taxes, student loans, and debts arising from fraudulent activity may not be dischargeable. Additionally, the debtor may be required to surrender certain assets, such as a second home or luxury items, in order to pay off their creditors.
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