Dealing with debt in Pennsylvania: Chapter 7 bankruptcy FAQs

Understanding how Chapter 7 bankruptcy works may help those considering taking this step determine if it is the right debt relief option for their needs.

For people in Pennsylvania and throughout the U.S., their peak earning years tend to be the same as those when their personal debt may reach its peak. In fact, people in the 35-44 age bracket carry an average of $133,100 in debt and those in the 45-54 age range have an average debt of $134,600, according to a recent Time Inc. report. While many are able to keep up with their financial obligations, there is any number of factors that may cause people to fall behind and become overwhelmed by their debt. In such cases, they may consider filing for Chapter 7 bankruptcy in order to achieve a fresh financial start.

Who is eligible for Chapter 7 bankruptcy?

Not everyone who is struggling with debt is eligible for Chapter 7 bankruptcy protection. Rather, there are certain eligibility requirements that people must meet. These include having qualifying debt under the means test and completing credit counseling through an approved agency within 180 days before filing. Additionally, those filing for Chapter 7 cannot have had another bankruptcy case dismissed in the previous 180 days due to their purposeful failure to comply with court orders or to appear before the court. They also cannot have voluntarily dismissed a previous case after their creditors took action to collect property for which they hold liens.

How does liquidation work?

Commonly referred to as liquidation bankruptcy, Chapter 7 cases require that sale of people's nonexempt assets. These properties, which may include second homes or vehicles, expensive musical instruments, valuable collections, family heirlooms, bank accounts and other investments, are gathered by a trustee appointed to the case and sold off. The proceeds of these sales are then applied to people's debts under their bankruptcy cases.

It is a commonly believed myth that Chapter 7 bankruptcies require people to give up everything. While their nonexempt assets are subject to the liquidation process, there is property that people are able to keep. This includes motor vehicles up to a certain value, certain jewelry, a portion of the equity in their homes, public benefits, and reasonably necessary clothing and household goods.

What happens to the remaining debt?

At the end of people's Chapter 7 bankruptcy cases, their remaining debts may be eligible for discharge. This order issued by the court frees debtors from their obligations to pay the debts. It also prohibits creditors from taking any further collection actions.

Although much of their debt may be eliminated through a Chapter 7 discharge, it is important to keep in mind that certain claims are not dischargeable. These include education loans, debts stemming from securities law violations, domestic support obligations, and claims for intentional and malicious injuries.

Working with a legal representative

On their own, seeking Chapter 7 bankruptcy protection can be challenging for people in Pennsylvania and elsewhere. Therefore, those who are considering this serious option may find it of benefit to consult with an attorney. A legal representative may explain their options and show them what their rights are, as well as guide them through the process.