These are answers to some of the most frequent questions I hear from my Tucson and Mesa clients considering Chapter 7 bankruptcy.  For a general overview of the Chapter 7 process, see our Chapter 7 Overview page.

1. What is a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy is a legal process by which you can eliminate debt.  It is one of several types of bankruptcy available to individuals (others being Chapter 11, Chapter 12, and Chapter 13).  But, because it is faster, simpler, and less expensive than the other types of bankruptcy, it is the most common type of bankruptcy filed by individuals.

A Chapter 7 bankruptcy is filed in bankruptcy court. There are a limited number of bankruptcy court divisions overseeing all the cases in a particular state, so if you live in a small town, your bankruptcy case will likely need to be filed in a court located in a larger city nearby.  For example, in Arizona, there are only three bankruptcy court divisions, located in Phoenix, Tucson, and Yuma.  Depending on where you live, you case will be filed in one of those three cities.

A Chapter 7 bankruptcy it is unlike many other court proceedings, like civil disputes or criminal cases.  Most of the important work in a Chapter 7 case is done before the case is filed in court.  If a Chapter 7 bankruptcy is properly prepared, in the overwhelming majority of cases, the person filing for bankruptcy never has to see the judge, or at most has to see the judge only once, for a reaffirmation hearing.

2. Who can file a Chapter 7 bankruptcy?

Any individual can file for Chapter 7 bankruptcy.  However, while any individual can file for Chapter 7, there are additional requirements that must be met in order to avoid dismissal of the case, discussed immediately below.

3. Are there any prerequisites to filing Chapter 7 bankruptcy?

Yes, in order to file for Chapter 7 bankruptcy (or any bankruptcy), most individuals will have to complete a credit counseling course, with an approved agency, within 180 days before the filing date of the bankruptcy.  The list of the approved agencies should be available from the bankruptcy court and from the United State Trustee in your area, and is usually also on the court’s website.

There are some exceptions to this requirement for individuals who are unable to complete the credit counseling course because they are on active military duty, are incapacitated, or disabled, but even these exceptions require court approval in each specific instance.  In short, as a practical matter, in order to avoid dismissal of the bankruptcy case, a credit counseling course must be completed within the preceding 180 days.

4. What is the Means Test?

The means test is a procedure introduced into the Bankruptcy Code in 2005 to determine whether the filing of a Chapter 7 bankruptcy by any particular individual is considered “abuse.”  Cases that fail the means test, and are therefore considered “abuse,” get dismissed.

Performing the means test can get complicated, but in a simplified form, it involves taking your average monthly household income over the six months before the bankruptcy, and then subtracting from it various expenses that the Bankruptcy Code allows.  The resulting net income (or income after allowable expenses) is then compared to the threshold amount determined by the Bankruptcy Code.  The threshold amount varies depending on the amount of your debt.  If your net income is below the threshold amount, you pass the means test, and if it is above the threshold amount, you fail the means test.

However, there is an important caveat.  The means test does not apply if your average monthly household income is below the median (average) income for a household of your size in your state.   This creates the unfortunate effect that the lower the average income in your area, the more difficult it is to qualify for Chapter 7.  And conversely, the higher the average income, the easier it is to qualify.  So when the economy is struggling and most people are worse off financially, Chapter 7 bankruptcy is less easily available, and when the economy is doing well, Chapter 7 is more easily available.  This is a direct result of the changes to the Bankruptcy Code pushed through by the credit card companies back in 2005.  For additional information, read Do I Qualify for Chapter 7 Bankruptcy?

5. Is there a minimum amount of debt required to file for Chapter 7 bankruptcy?

There is no minimum amount of debt required to file for Chapter 7 bankruptcy.  In theory, you could file with $1 in debt.  However, as a practical matter, the amount of debt should be taken into consideration before deciding to file for Chapter 7.  Firstly, the amount of debt that can be eliminated should be compared to the monetary costs of the Chapter 7, including the legal fees, filing fees, and related expenses.  There is no single rule that applies in all cases, and sometimes even a very small amount of debt will justify filing for bankruptcy.  But, in most cases, it is reasonable to expect the amount of debt eliminated to be at least four times higher than the cost of Chapter 7 bankruptcy.

Secondly, the amount of debt to be eliminated should be weighed against the non-monetary costs of filing for bankruptcy.  One thing to keep in mind is that Chapter 7 bankruptcy can only be filed once every 8 years.  So if you file for Chapter 7 bankruptcy to eliminate a small amount of debt, and soon thereafter incur more debt, you will no longer be able to eliminate that new debt, or at least not through a Chapter 7 bankruptcy.  Another thing to consider is the impact of bankruptcy on your credit score.  For example, if you have a stellar credit score, it may not make sense to file for bankruptcy to eliminate a $2,000 debt, because the negative effect on your ability to get credit will likely cost you much more than the amount you are eliminating.  However, by the time most people begin considering bankruptcy, their credit score is usually already so poor that bankruptcy will have minimal effect on it.

6. Is there a maximum amount of debt I can have when filing Chapter 7 bankruptcy?

No, there is no maximum amount of debt you can have when filing for Chapter 7, and there is no limit on how much debt you can eliminate through a Chapter 7 bankruptcy.

7. What is the discharge?

The discharge is a court order that is issued upon the successful completion of a bankruptcy case by an individual.  It is the order that discharges (eliminates) your debts.

Please note that a discharge only eliminates debts to the extent permitted by the Bankruptcy Code.  Some debts cannot be eliminated, like many taxes, and others can only be eliminated under certain circumstances, like student loans.

8. When will I receive my discharge?

In a Chapter 7 bankruptcy case filed in Arizona, the discharge is usually issued approximately three months after the meeting of creditors.  The precise timing can vary based on a number of factors, including the time needed for the trustee to investigate your financial affairs, and how backed up the trustee is with other cases.

9. Can my discharge be denied?

Your Chapter 7 discharge can be denied in certain circumstances.  The reasons for which your discharge can be denied include the following:

  • Transferring, concealing, mutilating, or destroying your own property within one year before filing for bankruptcy, or doing the same to any property that becomes part of the bankruptcy estate. Allowing someone else to transfer, conceal, mutilate or destroy property has the same effect.  The actions must be done with intent to hinder, delay, or defraud a creditor or an officer responsible for overseeing property in bankruptcy.
  • Concealing, destroying, mutilating, falsifying, or failing to keep records or documents from which your financial condition can be determined.
  • Knowingly and fraudulently doing the following in connection with the bankruptcy:
    • making a false oath or account;
    • presenting or using a false claim;
    • giving or receiving money, property, or advantage for doing or not doing something, or attempting to do this (i.e. giving or taking bribes);
    • withholding any recorded information related to your property or financial affairs from an officer responsible for overseeing the bankruptcy.
  • Being unable to explain in a satisfactory manner any loss or deficiency of assets.
  • Refusing to obey a court order or to testify if ordered by the court.
  • Having received a discharge in another Chapter 7 bankruptcy case (or a Chapter 11 case) that was filed within 8 years of the filing date of the current case
  • Having received a discharge in a Chapter 13 bankruptcy case that was filed within 6 years of the filing date of the current case, unless certain payment conditions were met in the Chapter 13 case
  • You agree to waive your discharge
  • Failing to complete the required financial management course
  • You have been found guilty of certain felonies, securities fraud, racketeering, or reckless acts leading to death or serious injury of another person in the last five years. Or there is a case pending against you in which you may be found guilty of such a violation.

10. What debts are eliminated in Chapter 7?

Most unsecured debts can be eliminated in Chapter 7 bankruptcy.  Debts such as credit cards, medical bills, personal loans, payday loans are all eliminated.  In addition, most judgments can be eliminated.  Even some income tax liabilities can be eliminated in Chapter 7, if they are old enough and other requirements are met (see Question 12 below for an additional discussion of this topic).

11. What debts are not eliminated in Chapter 7?

The following is a list of the most common types of debts that are not eliminated in Chapter 7:

  • Most tax debts
  • Debts obtained by fraud, if the bankruptcy court makes a determination of fraud upon a timely request by the creditor
  • Debts not listed on the required Chapter 7 form (called the “bankruptcy schedules”)
  • Debts for domestic support, which include alimony, maintenance, or support, and certain other divorce-related debts, including property settlement debts
  • Debts for intentional injury to the person or property of another
  • Debts for some fines or penalties
  • Debts for student loans, unless the bankruptcy court determines that not discharging the debt would impose an undue hardship on the debtor
  • Debts for personal injury or death caused by the debtor’s operation of a motor vehicle while intoxicated
  • Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge
  • Debts incurred after the bankruptcy is filed

For additional information, read Debts Not Discharged in Chapter 7 Bankruptcy.

12. Can I get rid of my mortgage In Chapter 7 bankruptcy?

If you want to keep your house, then you cannot get rid of your mortgage in a Chapter 7 bankruptcy.  A mortgage is a secured debt, and Chapter 7 generally does not affect secured debts, especially secured debts to which you agreed.

13. Can I get rid of my tax debt?

Generally, you cannot get rid of your tax debt in Chapter 7 bankruptcy.  There are, however, some exceptions for older income tax debt.  Income taxes may be dischargeable if the tax return for those taxes was due more than three years before you file for bankruptcy, and you filed your tax return on time, or if you filed the return late, you filed it at least two years before filing for bankruptcy.  However, there are several exceptions to the exceptions.  So, for example, if you file your tax return on time over 3 years before filing for bankruptcy, but the tax liability in your return is calculated incorrectly and the taxing authority later assesses additional taxes, you will be subject to an additional waiting period if the mistake was inadvertent, or the taxes may not be dischargeable at all if you intentionally filed an incorrect tax return.  Determining whether any particular tax debt is dischargeable usually requires careful case-by-case analysis.

14. Who is the Trustee and what does the Trustee do?

The trustee is an individual assigned to oversee your Chapter 7 bankruptcy case.  The duty of the trustee is to ensure that you have complied with the Bankruptcy Code, and, if you have non-exempt assets, to collect and sell those assets and pay money to your creditors.  For more information on a trustee’s role, see our FAQ page.

15. What Is a Meeting of Creditors?

A meeting of creditors, also called a “341 meeting,” is a required meeting in all Chapter 7 cases.  It is an opportunity for the Chapter 7 trustee and your creditors to ask you questions about the documents you submit to the court, and about your financial affairs.  In most cases, creditors do not show up to this meeting, despite its name.  So it usually is just a meeting with the trustee.  The trustee asks a series of standard questions (each trustee has a list of his or her own standard questions, but they are all fairly similar).  If something stands out to the trustee about your situation, the trustee may then ask a few questions specific to your circumstances.  Absent unusual circumstances, this meeting is very short, lasting five minutes or less.

16. How long does a Chapter 7 case last?

In answering this question, it is important to distinguish two events in the Chapter 7 process, the discharge, and the date the bankruptcy case is closed.  On average at the time of this writing, in Arizona bankruptcy cases, it takes approximately four months from the filing of a Chapter 7 case to get the discharge.  The discharge date is the important date for most people, because that is the date that your debt is officially eliminated.

However, the bankruptcy case is not over at discharge, because the case remains open and is not yet closed.  The case will not be closed until the Chapter 7 trustee completes the administration of the case, or the process of collecting and liquidating any non-exempt assets.  If there are no non-exempt assets, then the case will likely be closed shortly after discharge.  But if there are such non-exempt assets, then the case can remain open for several months or, in rare instances, several years.  For example, if you receive significant tax refunds, the trustee is likely to keep your case open until you file your tax return for the current year, because part or all of your tax refund will be non-exempt and the trustee will be able to take it.  In sum, it is important to be aware whether your Chapter 7 case has closed, because until it is, you remain under the supervision of the bankruptcy court and the Chapter 7 trustee.

17. Can a husband and wife file for Chapter 7 together?

Yes, a husband and wife can file for Chapter 7 bankruptcy together.  In most cases, filing together is the best course of action.  For more information, read Should Spouses File For Joint Bankruptcy?

18. Will Chapter 7 help me if I am already being sued or garnished?

Yes, Chapter 7 will put a stop to most lawsuits and garnishments.  If the debt for which you are being sued or garnished can be discharged in bankruptcy, then completion of a Chapter 7 bankruptcy will permanently end the lawsuit or garnishment.  If the debt cannot be discharged, for example if it is for child support or alimony, then the lawsuit or garnishment will resume after the bankruptcy is over, or after the bankruptcy court allows it to resume.

One caveat with filing for Chapter 7 to stop a garnishment is that the garnishment will stop as of the date the bankruptcy is filed, but you will not be able to recover any of the money that was garnished up to that point.  For more information on using bankruptcy to stop a garnishment, read How to Stop a Wage Garnishment Right Now.

19. Will I lose my property if I file for Chapter 7?

Most people filing for Chapter 7 will not lose any property, because all of their property is either exempt under applicable laws, or has insignificant value.  If you have property that exceeds what is protected under the exemption laws, and that has sufficient value, then you may lose it in Chapter 7.  For the most common examples of such property, read What Will I Lose If I File For Bankruptcy?  For additional information, read What Happens to My Property When I File for Bankruptcy? and  Can I Keep My Car In Chapter 7 Bankruptcy?

20. Can I sell or give away property before filing for Chapter 7?

You should not give away any property before filing for Chapter 7.  Giving away property can have a number of negative consequences.  At a minimum, it will likely be considered a fraudulent transfer, and the person to whom you gave the property will have to give it back to the Chapter 7 trustee.  In the extreme cases, especially where the transfer is concealed, it can be considered fraud and lead to criminal prosecution.  If you believe that you have property that belongs to someone else, such as a car belonging to your child that is in your name for insurance purposes, then it is best to consult with a bankruptcy attorney to determine how to properly prove that the property is fact does not belong to you.

21. Can I do anything to protect my assets before filing for Chapter 7?

Yes, bankruptcy planning is permitted by many bankruptcy courts, in particular by the Arizona bankruptcy courts.  Generally, bankruptcy planning involves converting non-exempt property into exempt property, or spending non-exempt funds on allowable expenses.  Because there are many different types of assets that one may potentially need to protect, it is best to consult with a bankruptcy attorney on the options that would work best for your particular situation.

22. Will I have to go to court?

In most cases, you will never have to see the judge, and with the changes introduced as a result of COVID, and you will not even need to go into a courthouse.  In the majority of cases, the only time you will have to meet with anyone other than your lawyer is at the meeting with the trustee.  These meetings are now being held by telephone or by Zoom.  If you need to sign a reaffirmation agreement, for example for a vehicle that you want to keep, then you and your lawyer may have to attend a reaffirmation hearing in front of a judge.  But that is usually the only reason for you to see a judge in a Chapter 7 case.

23. Can I choose which debts to include in my Chapter 7 bankruptcy?

No, you cannot choose which debts to include in a Chapter 7 bankruptcy.  All of your debt must be included.  If you intentionally exclude debt from your bankruptcy documents, it could be considered bankruptcy fraud.

Most people who ask this question are usually concerned about including a debt that is tied to property that they want to keep, such as a car loan or a mortgage.  However, it is important to remember that including a debt in the bankruptcy documents does not mean that the debt will be eliminated, or that you will not be able to keep your property.  For example, when it comes to secured debt, such as mortgages or car loans, this debt is unaffected by a Chapter 7 bankruptcy, and you can normally retain your property so long as you continue paying the debt.

24. Can I still pay a discharged debt?

Yes, you can still pay a debt that has been discharged, just like you can give somebody money as a gift even if you do not owe them anything.  This question often comes up with repaying obligations to friends or relatives.  You are free to pay back friends or relatives after the bankruptcy is over, even if you have no legal obligation to do so.  Please be aware, though, that many business creditors will not accept payment on a discharged debt, due to concerns that accepting such payments may inadvertently violate the discharge order.

25. Will Chapter 7 affect my credit score?

Chapter 7 bankruptcy can affect your credit score.  How much it will affect your credit score will depend on a number of factors, including what your credit score was before the bankruptcy.  For more information, read Can Bankruptcy Affect My Credit Score?

26. Can I be fired for filing Chapter 7 bankruptcy?

You may not be fired solely because you filed for Chapter 7 bankruptcy.  The Bankruptcy Code expressly prohibits both government and private employers from discriminating with respect to employment against anyone who files for bankruptcy, or discrimination with respect to employment against any person association with the person who files for bankruptcy (such as your spouse).

27. Do I need A lawyer to file for Chapter 7 bankruptcy?

You do not have to have a lawyer in order to file for Chapter 7 bankruptcy, and people have successfully completed a Chapter 7 without an attorney.  However, it may be difficult to successfully complete a Chapter 7 bankruptcy without an attorney if you are not able or willing to dedicate the time to learn the applicable bankruptcy laws and rules.  Unfortunately, it is all too common for people to file for bankruptcy without a lawyer, thinking they have a simple case, only to inadvertently lose thousands of dollars, or worse, be denied their discharge, due to their failure to understand the bankruptcy laws.  For more on this topic, read Should I Hire A Bankruptcy Attorney? and Do I Need A Bankruptcy Lawyer? – A Judge’s View.

For additional information on Chapter 7, you may also be interested in these articles: 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona.

If you are trying to decide whether Chapter 7 or Chapter 13 is right for you, you may also want to read Commons Questions About Chapter 13 Bankruptcy.

The above is provided for general informational purposes only. It is not intended to and does not constitute legal advice, and does not create an attorney-client relationship. If you need legal advice for your specific situation, you should contact a qualified attorney in your area.