Chapter 7 (Liquidation) Bankruptcy
Ideal for Individuals, “Average Joe’s” and Married Couples
Chapter 7 bankruptcy is for individuals, married couples, corporations and other corporate type business entities, and partnerships. For individuals and married couples, it provides a discharge from most debts, making them unenforceable. Corporations and other corporate type entities such as LLC’s do not get a discharge. Chapter 7 (and all bankruptcies) require the filing of a petition and schedules which give a complete picture of the debtor’s property, the debts sought to be discharged, and the income and expeditures of the debtor. Since October of 2005, when the latest significant statutory amendements were effective, Chapter 7 debtors are required to file additionally a “means test,” unless their debts arose principally from business losses. If the income of the debtor or debtors exceeds a certain level (which increases with the size of the family unit), the debtor or debtors may be forced to file a Chapter 13 bankruptcy, which would require some payment to creditors over a period of 36 to 60 months.
A Chapter 7 bankruptcy for individuals provides a discharge from most unsecured debts. Secured debts (for example, mortgages and auto loans) must be paid for if the debtor wants to keep the property. Some debts cannot be discharged, such as recent IRS debts, student loans, alimony, child support and marital property settlement debts. Debtors can keep certain property, including some or all the equity in a homestead, personal property of a value of $1000 or less per debtor (or $5000 per debtor if there is no homestead), and $1000 equity in a motor vehicle for each debtor.
Getting Rid of Second Mortgages
Since May of 2012, the 11 circuit court of appeals has allowed “stripping” of second mortgages and home equity loans where the value of the home is less than the first mortgage.