What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy allows individuals to eliminate qualifying debt through a court supervised legal process. Many people refer to Chapter 7 as liquidation bankruptcy, but that description often creates unnecessary fear.
In reality, most Chapter 7 cases in Nevada do not involve liquidation of assets. Proper use of Nevada exemption laws often protects homes, vehicles, and personal property. For an overview of the federal process, visit US Courts Chapter 7 Basics.
How Chapter 7 Works
Chapter 7 focuses on eliminating debt rather than creating a repayment plan. After filing, a bankruptcy trustee reviews the case to confirm accuracy and eligibility.
Many unsecured debts qualify for discharge. These often include credit cards, medical bills, personal loans, payday loans, lawsuits, and judgments. In certain cases, Chapter 7 may also discharge some tax debt and secured obligations.
Who Chapter 7 Helps Most
- You live in Nevada and have limited or inconsistent income
- Most of your debt is unsecured
- You cannot afford a long term repayment plan
- You are being sued or facing wage garnishment
- You are current on secured debts or willing to surrender collateral
- Your credit has already suffered from missed payments
Chapter 7 Bankruptcy Eligibility in Nevada
The Means Test
Eligibility for Chapter 7 depends on a financial calculation known as the means test. This test compares income, household size, and allowable expenses to state and federal guidelines.
The formula does not always reflect real life financial pressure. Results can feel counterintuitive. A knowledgeable bankruptcy attorney can present financial details in a way that accurately reflects your situation.
Additional Eligibility Factors
Income sources may include wages, self employment income, retirement benefits, Social Security, government assistance, or business income. There is no minimum income requirement for Chapter 7.
Chapter 7 has no minimum or maximum debt limits. If you received a prior Chapter 7 discharge, you must wait eight years to file again. If that period has not passed, you may still qualify for Chapter 13 bankruptcy.
The Chapter 7 Filing Process
Preparing and Filing the Case
The process begins with a confidential consultation and document review. Required records usually include pay stubs, tax returns, bank statements, and a list of debts.
Once the petition is filed, the automatic stay goes into effect. Creditors must stop collection efforts, lawsuits, wage garnishments, and phone calls.
The Creditor Meeting
Most Chapter 7 cases require one short meeting with the bankruptcy trustee. The trustee verifies identity and confirms that the information in the petition is accurate. Creditors rarely attend.
The Impact of Filing Chapter 7
Immediate Financial Relief
Chapter 7 provides fast relief from overwhelming debt. Many debtors already have poor credit before filing. After discharge, credit scores often improve rather than decline.
A bankruptcy filing can remain on your credit report for up to ten years. However, many Nevada clients qualify for new credit shortly after discharge when used responsibly.
Benefits of Chapter 7 Bankruptcy
Debt Elimination and Fresh Start
The primary benefit of Chapter 7 is the discharge of most unsecured debt. Eliminating debt frees income for housing, transportation, and daily living expenses.
The automatic stay also provides immediate relief from creditor harassment, lawsuits, and wage garnishments.
Potential Drawbacks of Chapter 7
Credit and Asset Considerations
Chapter 7 may affect credit scores, especially for individuals with strong credit before filing. In rare cases, nonexempt assets may be sold by the trustee.
Legal fees apply, but they often total far less than the debt eliminated. Many clients find the cost lower than continuing monthly unsecured debt payments.
Alternatives to Chapter 7 Bankruptcy
Chapter 7 does not fit every situation. Some individuals benefit more from debt consolidation, debt settlement, or Chapter 13. Reviewing all options helps ensure long term financial stability.
Chapter 7 vs Chapter 13 Bankruptcy
Key Differences
Both chapters provide debt relief, but they serve different goals. Chapter 7 focuses on fast elimination of debt. Chapter 13 focuses on repayment and asset protection.
Fast elimination of qualifying unsecured debt
- Often completed in three to four months
- Discharges most unsecured debts
- Best for limited disposable income
- May involve liquidation of nonexempt assets
- No repayment plan required
Court supervised repayment with asset protection
- Three to five year repayment plan
- Can stop foreclosure and repossession
- Protects nonexempt property
- Payments made through a trustee
- Remaining unsecured debt may be discharged
Not sure which bankruptcy chapter fits your situation?
Choosing between Chapter 7 and Chapter 13 depends on income, assets, and long term goals. Start with a confidential consultation using our secure intake form.
FAQs
What debts can be discharged in Chapter 7 Bankruptcy?
Most unsecured debts, like credit card debt, medical bills, and personal loans, can be discharged. Although, certain debts like student loans, child support, and tax debts are typically not dischargeable. However, there are many exceptions to these general rules.
As a practicing attorney for more than two decades in multiple states, I have encountered almost every situation and can advise you of how your debts would be treated in bankruptcy.
How long does Chapter 7 take?
From filing to discharge, the process usually takes 3-4 months. As soon as the case is filed, however, collection efforts stop as a result of the “”Automatic Stay”, and payments to dischargeable debts typically are suspended as the case moves through the process.
Can I keep my property?
Yes! Nevada law provides generous exemptions for debtor’s property, including real estate (usually a homestead), automobiles, retirement savings, home furnishings, clothes, jewelry, and financial assets.
Debtors filing Chapter 7 seldom possess property that can be liquidated in bankruptcy. This is often due to comprehensive consultations with knowledgeable attorneys, who can provide valuable advice about what to anticipate before your case is officially filed.
How often can I file for Chapter 7?
You can file for Chapter 7 Bankruptcy once every eight years.