Personal Bankruptcy—An Introduction to Chapter 7

The Discharge of Debt in a Bankruptcy Filing

The coronavirus pandemic has had a devastating impact on the U.S. economy, with government statistics suggesting that as many as one in five Americans currently is unemployed. Though stimulus payments and other government programs have helped, many Americans are struggling to make ends meet and facing an immediate future that remains uncertain. One reason Congress enacted our bankruptcy laws was to give hardworking folks an opportunity for a fresh start when unforeseen circumstances cause financial hardships.

If you’re among the many who are suffering, you may have thought about filing for bankruptcy protection in order to keep your home, car, or other assets and get out from under a mountain of debt. It’s not quite that simple, though. There are many ways bankruptcy can ease your burden, but there are limitations as well.

Permanently Eliminating Debt Under Chapter 7

Though there are other avenues available, the two most common types of personal bankruptcy filings are under Chapter 7 and Chapter 13 of federal bankruptcy law. Chapter 7, also known as “liquidation,” allows you to permanently discharge debts in exchange for transferring assets to the bankruptcy court. Those assets are then sold, with the proceeds distributed to your creditors.

The first thing to understand about a Chapter 7 petition is that you must submit to a “means test” in order to qualify. That requires you to demonstrate to the bankruptcy court that you lack the resources to repay your creditors over a three-to-five-year period.

In addition, not all debts can be discharged:

• Child support and spousal support arrearages are not dischargeable;
• Student loan debt can be discharged only in extremely rare situations; and
• Most tax obligations have complex rules that make discharge rare.

As a general rule, when you file under Chapter 7, you don’t have to forfeit all personal assets. State and federal law both allow you to claim certain property as exempt, though you must choose between the exemptions available under state law or federal law. The exemptions include some of the value of a home or residence, a car, and general personal property.

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we work closely with people in New Jersey in personal bankruptcy filings. Contact our office online or call us at 856-424-6400 to set up a free initial consultation (on selected cases). We are currently available by phone, text message, or videoconference only. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.

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