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Overview of a Chapter 7 bankruptcy

Washington, D.C. residents considering bankruptcy may want to know more about Chapter 7 proceedings and protections. Unlike other types of bankruptcies, a Chapter 7 action has no repayment plan but results in a liquidation of unsecured debts, allowing a person to start over with a clean slate.

A person qualifies for Chapter 7 if they have insufficient means to repay their debt. This usually means that a person's income is below the state median. If a person has income above the state median, eligibility is determined by a means test. A person also must have completed an approved credit-counseling course.

The bankruptcy process begins with the debtor filing a petition that lists the debtor's income, expenses, assets and liabilities. Other things that may be included in the petition might include income tax returns. The petition also includes a schedule of exempt property, which is the property the debtor will be allowed to keep. Upon filing the petition, an automatic stay is placed on most debt collection efforts, and a husband and wife may file a joint petition.

The bankruptcy trustee will then schedule a meeting with the debtor and creditors in order to determine that no abuse is present. Following that, the trustee will liquidate the debtor's nonexempt property and use any proceeds to pay creditors. Approximately 60 to 90 days later, the debtor will receive a discharge, meaning the debtor is no longer responsible for the unsecured debt, and lenders cannot attempt to collect it. Taxes, child support and certain other debts cannot be discharged.

Although the Chapter 7 process is usually straightforward, it is subject to many exceptions. Because of this, anyone who is considering a Chapter 7 bankruptcy filing may want to discuss his or her situation with a bankruptcy lawyer.

Source: Administrative Office of the U.S. Courts, "Liquidation Under the Bankruptcy Code", September 11, 2014

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