Chapter 7 Bankruptcy
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Chapter 7 Bankruptcy – Everything You Need to Know

by Eric

Bankruptcy is a legal option that can be used by individuals or other organizations that can no longer repay their debts to creditors. When someone files for bankruptcy, they require a personal bankruptcy lawyer who helps them gain relief from some or all of their debt. This legal process is usually initiated by the debtor or can even be imposed through a court order.

In the United States, there are three chapters of bankruptcy, which include chapters 7, 11, and 13. Many individuals and organizations consider filing for chapter 7 bankruptcy as compared to chapter 13 bankruptcy since it is quicker and the majority of the property is kept by the debtor. A US citizen can file chapter 7 bankruptcy in Ohio if they face any issues with their financial situation within the state of Ohio, and this can be done in other states as well. 

Terms to Know When Filing for Bankruptcy:

When following all the procedures for bankruptcy, individuals may come across many legal words that are used specifically for bankruptcy cases. Following are some of the most common and essential terms:

Credit Counseling:

Before someone files for bankruptcy, they must meet with a nonprofit budget and credit counseling agency. Once the individual has filed for bankruptcy, then they or must complete a course related to “personal financial management” before his/her case is considered as a discharged bankruptcy. However, under a few conditions, the individual can get out of taking the course and meeting nonprofit budget and credit counselors.

Bankruptcy Trustee:

Once an individual has officially filed for bankruptcy, they will have to review the debtor’s petition, liquidate property (If filed under chapter 7), and distribute all the proceedings to the creditors. In chapter 13 filing, though, the debtor’s repayment plan is also looked after by the trustee. The trustee is the person who collects payments from the debtor and distributes them to the creditors as he/she receives them. 

Discharged Bankruptcy:

Once all the proceedings for the bankruptcy are completed, it is considered a discharged bankruptcy. If the debtor files for chapter 7 bankruptcy, then it is considered a discharged bankruptcy once the assets have been sold and all creditors have been paid. If an individual file for chapter 13 bankruptcy, then it is considered discharged bankruptcy once the individual has completed the repayment plan.


This is a legal action that lets a creditor take, sell and even hold onto a debtor’s real estate as a security or even as repayment of debt.

Exempt Property:

All chapters in bankruptcy can require you to sell your assets in order to repay creditors. However, some of the property can be exempted from sale. Each state determines what can or cannot be exempted according to its laws. Generally, personal vehicles and work tools are given the exemption of being sold as repayment to creditors.


Liquidation is the sale of the debtor’s non-exempted property. This sale is required to gain cash in order to reimburse creditors.

Reaffirmed Account:

Reaffirming an account allows the debtor to keep a piece of collateral if he/she is committed to paying off their debt. Usually, even cars are seized as a part of bankruptcy procedures.

Unsecured Debt:

Unsecured debt is a type of debt in which the creditor does not hold credit cards or other tangible collateral.

Secured Debt:

Secured debt is the type of debt where a reclaimable property is used as a backup for the debt. For example, if someone mortgages a house, and a person is unable to pay off the mortgage, then the house is taken away. In this case, the house was the collateral, and this made the debt secured, which is an advantage for the creditors.

Means Test:

When someone files for bankruptcy, they must first show evidence that they are unable to repay their debts, and this is part of the bankruptcy code. This requirement is essential so that people do not misuse the bankruptcy code. The means test will look into an organization or an individual’s account information such as income, assets, unsecured debts, and expenses. If the organization has filed for chapter 7 bankruptcy and failed the means test for it, then they get transferred to chapter 13 bankruptcy.

Debts That Are Not Covered by Filing for Bankruptcy:

Bankruptcy is capable of eliminating the majority of debt, but it cannot clean up all the debts. There are certain types of debts that are known as unforgivable debts and must be paid off by the debtor on their own. Following are some of the debts that bankruptcy cannot clear:

Frequently Asked Questions:

What Kind of Organization or Individual Can File for Bankruptcy?

All three chapters of bankruptcy have their own requirements that must be met before any entity can apply for it. Any entity is capable of applying for chapter 7 bankruptcy. But businesses cannot file for chapter 13 bankruptcy, while individuals can.

How Long Does It Take to Cover A Debt Through Bankruptcy?

Generally, chapter 7 bankruptcy can take up to three months. However, chapter 13 bankruptcy has a three-to-five-year repayment plan, and it finishes once all the repayments have been made to the trustee.

Does One Have to Go to Court to File for Bankruptcy?

In most cases, you do not need to go to court to file for chapter 7 bankruptcy. But the debtor is required to attend a court hearing known as a meeting of creditors.

While in chapter 13 bankruptcy, you need to first attend a confirmation hearing in court. But if a creditor files an objection against your bankruptcy, then you will have to attend any court hearings. Thus, whether you have to visit the court depends on individual circumstances. 


Bankruptcy can be a great option for many businesses that are facing a financial crisis. However, it is essential to know that while bankruptcy can solve the majority of financial issues, it can still go back into debt if proper financial management is not considered and practiced.

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