Chapter 7 Bankruptcy is the most common chapter people file. Approximately two-thirds of bankruptcies are Chapter 7’s. During a Chapter 7 proceeding, the client aims to discharge his or her debt, which relieves the debtor’s financial problems so that they no longer owe. A bankruptcy trustee discharges the debt and is interested in three aspects of the debtor’s financial life; income, assets and liabilities.

ASSETS IN A CHAPTER 7 BANKRUPTCY

During a Chapter 7 proceeding, both a trustee and a judge will be assigned to your case. It is rare for you to see the judge, as you will be meeting with the trustee throughout your case. The trustee’s duties include; verify that bankruptcy filings are accurate, talk to the debtor and make sure the information in the filing is accurate, as well as decide if you are going to have any assets liquidated. The one drawback of filing a bankruptcy is that your assets and financial life will be under close watch.

LIQUIDATION OF ALL ASSETS NOT ALWAYS NEEDED

The trustee does not find it mandatory to liquidate any of the debtor’s assets in about 95% of all Chapter 7 cases in the U.S. Usually, debtors possess assets that don’t have much value to creditors so they are not subject to liquidation.

MEAN’S TEST AND INCOME GUIDELINES UNDER THE NEW BANKRUPTCY LAW

A means test was put into effect with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This test reviews the average gross income of the debtor over the last six months. It then looks at whether or not that average income will remain consistent in the future. Under the law, certain household expenses are eliminated from the average income average. Both the IRS and the debtor’s history of spending define these expenses. The debtor may not be able to file for a Chapter 7 if their income is more than the government allows for the family size.

If the income amount above is lower than the States level, and the debtor has assets or income to repay part of the debt, they may be forced to file a Chapter 13. Under the new Bankruptcy Law, about 10% of filers who at one point were able to file a Chapter 7 can no longer do so.