What is a Chapter 7 Bankruptcy?

Chapter 7 Bankruptcy is sometimes called "liquidation" bankruptcy -- it cancels your debts, but you might have to let the bankruptcy court liquidate (sell) some of your property for the benefit of your creditors. ("Chapter 7" refers to the chapter of the federal Bankruptcy Code that contains the bankruptcy law.)

If you properly file a Chapter 7, you will no longer have to repay your debts and your debts will be “discharged”. A discharge in bankruptcy means that you no longer personally owe the debts.

Your goal in a Chapter 7 bankruptcy should be to “exempt” all of your assets so that you can keep all of your property and still wipe out all of your debts. However the U.S. Trustee will attempt to sell any assets you fail to properly “exempt”. You can’t exempt property you don’t claim which is why you must list all of your property.

In a Chapter 7, you are allowed to keep a certain amount of property that is called exempted property. The bankruptcy court and creditors cannot take “exempted” property from you unless they have a lien or mortgage on it.

For 2009 in Pennsylvania, you were allowed to keep $3,225 equity in a car, $10,775 in personal property, $20,200 in your home, a 1,075 wildcard exemption plus another $10,100 wildcard exemptions if the home exemption isn’t used. These amounts increase every year for cost of living. You also have an almost unlimited exemption for retirement funds ($1,095,000.00). It is very important to be aware that these figures are doubled for married joint filers.

The principle of a Chapter 7 bankruptcy is that the Debtor is allowed to keep a small amount of necessary exempted property to start over with and his creditors keep the rest of the property. However, with the proper pre-bankruptcy planning, it is rare that any property is handed over in a Chapter 7 case. Most people do not have any assets to hand over after they are allowed to keep their exempted property.


Stephen M. Dunne, Esq.
Dunne Law Offices, P.C.
(215) 854-6342
1500 JFK Blvd, Two Penn Center, Suite 200
Philadelphia, PA 19102
dunnelawoffices@gmail.com
www.dunnelawoffices.com