What is Chapter 7 Bankruptcy? Chapter 7 bankruptcy, also called "straight" or "liquidation" bankruptcy, is so named because the law governing the process is contained in Chapter 7 of the United States Bankruptcy Code. In Chapter 7, many (or all) of your debts will be cancelled. However, Chapter 7 may also require you to sell or “liquidate” some of your “non-exempt” assets to pay your creditors. The Chapter 7 process usually takes only 3 to 5 months to complete from the date that you file to the date of “discharge.”
How Does Chapter 7 Work? How Does the Chapter 7 Process Work?
Filing for Chapter 7 bankruptcy puts into effect an "Order for Relief" – also called the "automatic stay." The automatic stay prevents most creditors from taking action to collect what you owe them. Creditors may not legally grab ("garnish") your wages, empty or freeze your bank account, or repossess your car, house, or other property without first filing for court approval to lift the automatic stay. The automatic stay goes into effect as soon as your bankruptcy case is filed.
About 30 days after you file, you will be required to attend your 341 Meeting of Creditors. At the 341, you will be put under oath and will be asked questions by your bankruptcy trustee regarding your bankruptcy and the bankruptcy papers you have filed. It is the bankruptcy trustee’s duty to see that your unsecured creditors' rights are protected and that they are paid as much as they are legally entitled to. It is very rare that one of your actual creditors or an attorney for one of your creditors will appear at your 341 Meeting of Creditors. However, creditors do have a right to appear and may ask you questions about your bankruptcy.
After your 341, there is a creditor objection period of 60 to 90 days. Creditors have this limited period of time to file with the court any necessary objections to the discharge of the debt they are owed. After the expiration of the creditor objection period, you will receive your discharge. The discharge is the court document that officially wipes out your dischargeable debts.