Chapter 7


A Chapter 7 case is often called “straight bankruptcy.”   A Chapter 7 debtor is asking the Bankruptcy Court to wipe out the debts owed.  This is accomplished by the entry of a permanent federal injunction called an Order of Discharge.  The entry of this Order is the goal of your case, and to get it you must be prepared to disclose any information about your financial condition that the Court or an appointed trustee might request.

The Order of Discharge covers virtually all debts except obligations arising from a divorce, student loans and most taxes. 

A Chapter 7 case is a “liquidation” case which means it is not a payment plan or a reorganization.  The theory of a liquidation case is based on your assets being sold and the proceeds paid to your creditors.  This benefit to your creditors offsets the detriment to them caused by the Order of Discharge.  In practice, however, Chapter 7 debtors are able to retain a considerable amount of property that is deemed “exempt” from being sold for the benefit of creditors.

In every Chapter 7 case a “trustee” is appointed to oversee the case and to act as the liquidator of the debtor’s property.  The trustee conducts a meeting of creditors, which every Chapter 7 debtor must attend, and asks questions about the documents the debtor filed with the Court.  The trustee’s primary focus at the meeting of creditors is to learn about your property and its sale value.  Unless the property is exempt or subject to a valid lien, the trustee is required to obtain turnover of the property from you and sell it for the benefit of creditors.  You must cooperate fully with the trustee in order to obtain an Order of Discharge.

Exempt property is deemed by public policy to be a necessity.  Colorado exemptions are discussed more fully in our Colorado Bankruptcy Guide.  Exemptions allow you to retain a certain amount of clothing, household goods, vehicle value, tools of your trade and an amount for your home; there are other exemptions as well.

As in any bankruptcy case, you must accurately and fully disclose all of your assets and debts and respond to a series of questions in a statement of financial affairs.  Successfully obtaining your “fresh start” depends on avoiding the pitfalls that ensnare many who do not disclose certain transfers of property or even assets that they own.  Having capable and thorough counsel is a must in all but the most simple bankruptcy cases.  A good attorney can keep you from making serious errors, such a not claiming certain exemptions properly or transferring property that should be turned over to the bankruptcy trustee.

The more complex your case, the more chances for mistakes.  The new bankruptcy law that went into effect on October 17, 2005 (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA”)), makes it far more complicated to properly advise clients in Chapter 7 cases.  Many attorneys have stopped practicing in this area of law for this reason.

BAPCPA is complicated, but understanding its application to your situation may result in your being able to qualify for a Chapter 7 discharge when others have told you that you do not.

Please carefully review our Colorado Bankruptcy Guide to learn answers to most of the most common concerns of individuals and business owners who are experiencing financial stress.

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