Chapter 7 is an effective way to discharge personal liability, and get your fresh start

While the trustee has the power to sell assets, exemptions allow you to protect your assets.

The Chapter 7 bankruptcy is often what most people think of as a typical bankruptcy. Upon filing, the automatic stay comes into place to prevent collection attempts. Then, a trustee is appointed who has the power to sell unprotected assets, in order to pay back creditors. Finally, at the end, the discharge is entered which ends the debtor's personal liability, giving them a fresh start.

Most Chapter 7 bankruptcies take less than six months, start to finish. The process is more straightforward than a Chapter 13, but gives the debtor less control and less options.

Discharging Personal Liability

A Chapter 7 severs personal liability, not all liability. Secured creditors (the mortgage or a car loan for example) will generally have their rights to property survive the Chapter 7. So even though your car loan can't make you pay them after your Chapter 7, if you don't pay, they will still be able to take your car.

Unlike a Chapter 13, chapter 7 doesn't give you many tools to help reorganize and preserve assets, or get back up on your feet. It is designed to quickly get rid of a bunch of debt, sell assets if need be, and let everyone move on.

Protecting Assets

Protecting Assets

For most people, California law will determine what assets are protected or not protected, by using what are called "exemptions."

It is important that prior to filing, the estate is carefully reviewed so that all parties are aware of what is possible in the Chapter 7. No one likes surprises - neither the person filing, or the attorney!

​Additionally, a Chapter 7 trustee has the power to "claw back" certain transactions, undoing transfers of property in order to get money for creditors.

A major advantage is that the Chapter 7 discharge might apply to creditors that did not receive notice of the bankruptcy filing, unlike a Chapter 13.

Because of the trustee's power to sell your assets, Chapter 7 presents dangers that other bankruptcy Chapters do not.

Chapter 7s are powerful, effective tools for getting back on your feet. But they are also dangerous, and when people hurt themselves in bankruptcy, it is often inside of a poorly-planned Chapter 7.