When you file for Chapter 7 bankruptcy, the following things typically happen:
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Automatic stay: The moment your case is filed with the bankruptcy court, youre protected from creditors. This means that collection efforts, such as wage garnishments and foreclosure proceedings, must stop.
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Asset liquidation: A Chapter 7 bankruptcy is also called a liquidation bankruptcy because you may have to sell nonexempt possessions or assets to repay your creditors. However, many people have "no-asset" cases, meaning they get to keep all their belongings. The bankruptcy trustee gathers and sells the debtor's nonexempt assets, and the proceeds are used to pay off creditors.
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Debt discharge: An individual receives a discharge for most of their debts in a Chapter 7 bankruptcy case. This means that a creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. However, certain debts, such as student loans, child support, and taxes, cannot be discharged.
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Credit score impact: Filing for Chapter 7 bankruptcy will likely have a temporary negative impact on your credit score. However, it can also provide a fresh start by eliminating debt and allowing you to rebuild your credit over time.
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Means test: Your eligibility for Chapter 7 bankruptcy is subject to a means test, which determines if your income is low enough to qualify for this type of bankruptcy. Chapter 7 is generally chosen by individuals with lower incomes and few assets.
