This is the type of bankruptcy that is often referred to as a liquidation bankruptcy. An individual (or married couple) with an income level that passes the means test is eligible to file chapter 7. Business entities other than individuals may also file chapter 7.
To file chapter 7, a debtor is required to file a petition, schedules and other required forms. In a chapter 7, a trustee is appointed by the court and all of a debtor’s assets become property of the bankruptcy estate upon filing, and subject to liquidation for creditors. This does not mean that a debtor will lose all of their assets upon filing, as there are exemptions a debtor can claim, as allowed under the bankruptcy laws.
The bankruptcy laws require residents of Illinois to use exemptions permitted under Illinois law, unless they have not lived in Illinois for at least 2 years. Only nonexempt property is subject to liquidation if requested by the trustee.
In a chapter 7, all of the financial transactions of a debtor within a certain period of time before the filing of the case is reported in the required paperwork filed with the court and will be reviewed by the case trustee. A debtor contemplating filing bankruptcy should not incur new debt and preserve and be prepared to provide all financial records requested in the case.
A debtor in chapter 7 is scheduled for a meeting with the chapter 7 trustee within 30-45 days of the date the case is filed. A debtor will typically receive a discharge of eligible debt following 60 days after that meeting.
Secured liens such as mortgages or vehicle loans are typically not canceled by a chapter 7 discharge. A debtor may choose to reaffirm or keep certain debt in order to retain the property. Taxes and student loans are examples of debts that are typically not discharged in chapter 7. A debtor can earn a chapter 7 discharge only once every 8 years.
