Chapter 7 (Straight Bankruptcy)

Debt Relief

In a bankruptcy case under Chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for "exempt" property, which the law allows you to keep. In most cases, all of your property will be exempt. In the relatively few consumer cases where there is non-exempt property, the property is sold, with the money distributed to creditors.

If you want to keep property like a home or a car, but are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy generally does not eliminate or reorganize the rights of mortgage holders or car loan creditors. If you fit this situation a Chapter 13 may be a more attractive alternative.

If your income is above the median family income in your state, you may have to file a Chapter 13 case (The Texas median family income for a family of four in 2011 was $65,477 – this number is adjusted periodically). Higher-income consumers must fill out "means test" forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they can not file a Chapter 7 case, unless there are special extenuating circumstances.

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