Most U.S. individuals, partnerships, or corporations may file a Chapter 7 bankruptcy under the following circumstances:

1) The debts are primarily business related debts and not consumer debts, or

2) If the debts are primarily consumer debts then either:
      (A) If your average annual income measured by your actual income over the last six months is less than the median income for the state where you live, or
      (B) You meet the requirements of what is called the Means Test. The means test is a detailed computation of your income and expenses designed to determine your potential ability to repay a significant portion of your debt over the next five years. If the result of the test shows that you do not have such an ability, then you may file a Chapter 7 bankruptcy.

Most businesses can file a Chapter 7 bankruptcy including corporations, partnerships and limited liability companies. If your business is a sole proprietorship it is not a separate entity. It and its assets legally belong to the individual owner and are treated as the property of the individual owner.

Secured Debt– A “secured” debt means that a specific creditor has a specific claim, known as a lien, against a specific piece of property. For example, when you finance the purchase of a car, whoever lends you the purchase money has a lien, or the right to take and sell the car to pay the debt if you do not make your payments. Typical kinds of secured debts are for your house, your car, some kinds of furniture and appliances. Other kinds of secured debts can arise from the legal process. For example, if you do not pay the property taxes on your house, the government has a lien against your house and can take it and sell it to satisfy your tax debt. There are some other types of secured debts. A bankruptcy does eliminate the rights a creditor has under a lien.

In a bankruptcy you have the choice to treat property subject to a lien in one of three ways:

1)   You can “reaffirm” the debt which means that you sign an agreement with the creditor to the effect that you agree that the bankruptcy will not affect the original deal you had with that creditor and that you will keep the property and continue paying just as before, as though the bankruptcy never occurred. This is what debtors usually do with their house and cars if they owe money on them;
2)   You can “surrender” the property. If you no longer want the property, or if you think you cannot afford the payments for it in the future, you can just give it back to the creditor without further obligation; or,
3)   You can “redeem” the property. That means you are allowed to pay the creditor a lump sum equal to the entire current value of the property and keep it without further obligation. This option is not often used because most debtors do not have the funds to pay a lump sum. However this may be an attractive option if for example, you owe $400.00 on a refrigerator that has a current value of $150.00.

Unsecured Debt– An “unsecured debt” means a debt where the creditor has no lien, or specific claim against a specific piece of property. Typical examples of unsecured debt include credit card debts, medical bills, or trade debt. These are the debts that are erased (“discharged”) in bankruptcy. Unless you have property that is not secured and not exempt, these creditors typically receive none of what is owed to them.

No. All of your creditors must be listed in your bankruptcy. But remember, even if a creditor’s debt is discharged in bankruptcy, you can voluntarily repay them anyway if you choose to. But they cannot force you to pay them or try to collect the debt from you.

If you are in financial trouble, your credit rating may already be in bad shape. Whether it is, or not, obviously your credit score will go down when you file a Chapter 7 bankruptcy. A bankruptcy can be reported on your credit report for up to 10 years. However, that does not mean you cannot get credit for 10 years. Many people who have filed a bankruptcy are able to buy a car, get a house, or a credit card within a year after filing and can begin rebuilding their credit score. You may have to start with a secured credit card but, after filing a bankruptcy potential creditors know two things about you. First you cannot file another Chapter 7 bankruptcy for at least 8 years, and second, you do not have much debt. In effect, you are in a position to begin improving your credit rating right after your bankruptcy case.

Usually it is better for married couples to file together, however, it is not required and in some circumstances may be beneficial for only one spouse to file. However, if only one spouse files, creditors with debts on which both spouses are liable can still seek collection from the non-filing spouse.

Although filing a Chapter 7 bankruptcy can temporarily stop a home foreclosure or an auto repossession, unless you can pay the amount you are behind within a short period of time, you will need to consider an alternative method to avoid losing the asset.

Generally speaking, you get to keep—

1) “Secured” property— If you are current on your payments and sign an agreement with the creditor to continue making your payments you get to keep property that is financed and subject to a lien, typically including a house or an automobile, and;

2) “Exempt” property— property that by law may not be taken by creditors to satisfy your unsecured debts. Exempt property includes;

In many cases, after removing your secured property and exempt property from the bankruptcy estate, there is no property left. This is typically called a “no-asset case.” Most people get to keep virtually all of their property.

In addition, generally all money you earn, and property you acquire after your Petition is filed, is yours to keep.

Generally, the following kinds of debt are not covered by bankruptcy—

As part of your bankruptcy, you can sign an agreement with creditors who have a lien against property that you want to keep so that you keep paying those as though the bankruptcy never occurred– examples might be your house or cars that you financed (See “What is “secured” and “unsecured” debt?” above)

Otherwise, the effect of a bankruptcy is to prevent your unsecured creditors from making any effort or having any “right” to collect their debt from you. But after your bankruptcy, nothing prevents you from voluntarily repaying some or all of your debt if you want to.

Yes. All of your property must be listed. In fact, failing to list property that you know you own can subject you to having your case dismissed and under some circumstance even possible criminal prosecution.

Generally yes, however, you cannot sell property for less than its fair market value or for the purpose of avoiding your creditors and you will need very good documentation about the sale. The bankruptcy court closely scrutinizes your property transactions prior to the filing of your case. This is especially true if you have some special relationship to them such as a family member or a business partner.

You can make regular payments to your creditors before you file. However, if for example, you want to pay off your dentist because you want to keep using their service, generally you cannot make an unusual payment to them to the exclusion of your other creditors in the months before you file. If you do, the bankruptcy court can take that payment back from them. This is especially true if you have some special relationship to them such as a family member or a business partner. But remember, you can voluntarily choose to repay any creditor after you file.

As part of your bankruptcy, you can sign an agreement with creditors who have a lien against property that you want to keep so that you keep paying those as though the bankruptcy never occurred– examples might be your house or cars that you financed (See “What is “secured” and “unsecured” debt?” above)

Otherwise, the effect of a bankruptcy is to prevent your unsecured creditors from making any effort or having any “right” to collect their debt from you. But after your bankruptcy, nothing prevents you from voluntarily repaying some or all of your debt if you want to.