The People’s Lawyer

What is a Chapter 7 bankruptcy?

On Behalf of | Jan 13, 2023 | Bankruptcy

The umbrella of bankruptcy protects different types of debtors and their assets. Bankruptcy under Chapter 7 eliminates debt through a liquidation, or selling off, of assets. Court-appointed trustees take possession and distribute proceeds to creditors.

Though straightforward on paper, the process requires both debtors and creditors complete several steps and fulfill many obligations.      

A Chapter 7 filing requires creditors to submit proper claims. Trustees, however, lack the authority to sell all debtors’ property to satisfy the debt. Exemptions apply to certain types of property in West Virginia.

The federal government offers a list of exemptions, as do many states. A limited number of federal exceptions, such as retirement plans, remain available to debtors who have met the residency requirement.

How does the process work for debtors and creditors?

Any bankruptcy filed under Chapter 7 requires debtors provide specific documentation and follow an established process. Documentation includes a voluntary petition for relief, schedules of assets and liabilities and a statement of financial affairs, among others. Filers also must complete the following:

  • Credit counseling: Individual debtors must complete a session with an approved credit counselor to ensure they have knowledge of other options. This may include a course in financial management.
  • Means test: Debtors must pass a calculation known as a means test that calculates whether they have the ability to pay a portion of the debts. The test uses data for expenses from the Internal Revenue Service as well as median income for West Virginia.
  • Meeting of creditors: Courts issue notice of what is known as a “341 meeting” to all creditors listed on documents and who may appear and ask questions.

Where does West Virginia rank nationally for bankruptcies?

According to the American Bankruptcy Institute, filings under Chapter 7 have trended downward annually from 2016 to 2021. Over that five-year period, the number declined nearly 50%, from almost 3,000 to just under 1,500. Moreover, the percent decline in overall filings exceeded the national average of 24%.

Regardless of the cause, a bankruptcy effects a change in both day-to-day living and prospects for the future. Despite being the most common type and a stain on a credit report, a Chapter 7 bankruptcy can provide a clean slate. Attorneys who know the law can provide guidance and direction.