What is Chapter 7 bankruptcy?

Chapter 7 is often referred to as a “liquidation” bankruptcy, in which the person filing the case surrenders all of his or her non-exempt assets in order to obtain a bankruptcy discharge in a fairly short timeframe.  Businesses sometimes need to file Chapter 7 bankruptcy too for an orderly liquidation, although a business does not receive a Chapter 7 bankruptcy discharge of debt.

The goal of a Chapter 7 case is to obtain a bankruptcy discharge.  Not all debts are dischargeable, however.  The Bankruptcy Code contains detailed provisions regarding which types of debts are not dischargeable.  Some examples of debts which are generally not dischargeable are student loans, domestic support obligations (such as alimony, maintenance and child support), most taxes (although some tax debt is dischargeable), and debts which were incurred by fraud.

Upon the filing of a Chapter 7 case, a bankruptcy estate is created, and a trustee is appointed to administer the estate.   The trustee’s job includes selling non-exempt assets to pay debts.  There are only twenty-seven (27) Chapter 7 trustees in the state of Colorado.  Three of them are here at CR&L.  Therefore, we thoroughly understand what the trustee’s role in a Colorado Chapter 7 case is, and can provide you with valuable legal advice in your case as to what to expect from the role of the trustee, and how best to minimize its impact if there is a legal way to do so.

Not everybody qualifies for Chapter 7 relief in Colorado.  If your income is over the median income for a household of your size, you may need to take a “means test.”  The means test is a complex, eight (8)-page, single-spaced set of calculations that governs your eligibility to file a Chapter 7 case.  Proper interpretation of many of the deductions on the means test is the subject of numerous lawsuits in Bankruptcy Courts across the country.  We have extensive experience with the means test to ensure that you obtain all of the deductions to which you might be entitled.  Sometimes, however, a Chapter 13 case can be more appropriate anyway, depending upon your circumstances.

One of the roles of a Chapter 7 trustee is to sell your non-exempt assets to pay your debts.  Exemptions typically apply to your home, household goods and furnishings, jewelry, clothing, motor vehicles, and retirement accounts, just to name a few.  At CR&L, we walk you through the exemptions applicable in your case, so you know before you file if you have any issues with non-exempt assets. Under the Bankruptcy Code, the applicable exemption is not always easy to figure out.  Many people move from different states to Colorado.  Different states have different exemption laws, and some have “opted out” of using the federal exemption laws provided in the Bankruptcy Code.  CR&L will assess your applicable exemptions so you know what to expect before the case is filed.

Another role of a Chapter 7 bankruptcy trustee is to exercise special “avoiding powers” under the Bankruptcy Code, with the underlying policy of treating all of your creditors fairly and maximizing your bankruptcy estate.  At CR&L, we will analyze your financial history and provide you with valuable legal advice relative to your particular situation.