Chapter 7 Bankruptcy – Basic Information

For people who are not able to repay their debt obligations on time, there are basically 2 types of bankruptcy based on the chapter of the bankruptcy law they belong two. Chapter 7 bankruptcy can free a person of all his debt obligations and provide a second chance for a fresh start. That is the reason why it is also sometimes called "fresh-start" bankruptcy.
Chapter 7 is popularly called as "liquidation" bankruptcy too where an agent appointed by the court of law usually liquidates the assets to help you repay your debts to the creditors. The court will not plan your repayment schedule as in the case of chapter 13 bankruptcy.
How does Chapter 7 bankruptcy work?
Instead of giving you a repayment plan spread for the next few years, the court appoints a bankruptcy trustee to take care of selling your non-tax exempt assets. The money received from the sales of your assets will be distributed among your creditors. The court gives an "automatic stay" order (also called the "order to relief") to all your creditors which means that all the collection activities by the creditors should stop.
When you file for chapter 7 of the bankruptcy law, all the debts and the assets that belong to you are placed in the court's hands. You will have to seek the court's permission before you can sell these assets. Even when you want to pay the current debts, you will need the permission of the court.
Chapter 7 bankruptcy eligibility
To be eligible to avail the benefits of chapter 7 bankruptcy, you will have to pass the "means test". The means test is designed to make sure people with money enough to pay the creditors are not using chapter 7 for their advantage. You must be able to prove that your income is insufficient to make any debt repayments. Consult a florida foreclosure defense for more details on the means test.
Who is not eligible to file for chapter 7 bankruptcy
The court decides whether you are eligible or not to file for bankruptcy based on some criteria. You can seek the help of a bankruptcy attorney. If your average income for a month is greater than your median income (based on your family size and the place of your stay), you will not be considered eligible under chapter 7 bankruptcy law.

If you are in receipt of a disposable income sufficient enough to repay a part of your debts, you will be considered ineligible for chapter 7 bankruptcy. If you have sufficient income, you will be asked to repay the creditors with a schedule drawn by the bankruptcy court. Also if you have been involved in a fraudulent activity against your creditors, again you will be considered ineligible.
If you have already been discharged off debt repayments recently (within 8 years of filing for the current one) under bankruptcy law, you will not be considered eligible.
About the Author
Teisha Powell is a Florida foreclosure attorney, with years of experience in handling bankruptcy attorney and bankruptcy issues.