Chapter 7 bankruptcy is the most common type of bankruptcy.  About two thirds of all bankruptcies are Chapter 7’s. During a Chapter 7 bankruptcy proceeding, the client is attempting to obtain a discharge, which relieves the debtor of the burdens of the debt that the bankruptcy trustee discharges. (I.e. the debtor no longer owes). The bankruptcy trustee looks at three parts of the debtor’s financial life; income, assets and liabilities.

Assets In A Chapter 7 Bankruptcy.

During a Chapter 7 your case will be assigned both a trustee and a judge.  Most likely you will never see the judge. You will meet with the trustee during your case. The trustee's duties are to make sure the bankruptcy filings are correct, talk with the debtor to make sure all the information in the filing is correct and to decide if any assets should be liquidated.  This is one drawback to filing for a bankruptcy is that your assets and financial life will be reviewed quite closely.

Liquidation of All Assets Not Always Needed.

About 95% percent of Ch. 7 cases in the U.S. the trustee does not find it necessary or needed to liquidate any assets of the debtor.  Usually debtors have the type of assets that provide little or no value to creditors or are not subject to liquidation.

Mean’s Test and Income Guidelines Under the New Bankruptcy Law.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Congress implemented a "means test." This test looks at the gross income of the debtor (single or married) as an average over the last six months.  Then its looked to see whether that income will remain roughly the same in the future.  From that income amount the law provides that certain household expenses are removed. These expenses are defined both by the IRS and what the debtor has actually spent in their history.  If the income is greater than  the amount the government allows for the family size in the debtors region then they may not be able to file for a Chapter 7.

If the income amount as noted above is below the States defined level but have assets or income to repay part of the debt then may be forced to do so in a Chapter 13.  About 10% of filers who used to be able to file a Chapter 7 would be barred from doing so under the new Bankruptcy law.