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Chapter 7 and the reality of having 'no assets'

As we've established on our blog, Chapter 7 bankruptcy enables those individuals facing serious financial difficulties to secure a much-needed fresh start. To recap, the process involves a bankruptcy trustee liquidating certain non-exempt assets and applying any income derived through the sale of these assets toward unsecured debts with any remaining balance being discharged.

While we've established the difference between exempt and non-exempt assets, as well as secured debt and unsecured debt, it's only natural that those considering filing for Chapter 7 might still have questions about whether it's even an option if all of their assets would likely be found ineligible for liquidation.

In general, a bankruptcy trustee, the neutral official tasked with both case management and liquidation, will conduct a preliminary examination of the Chapter 7 filer's assets.

If the bankruptcy trustee determines that the entirety of the bankruptcy filer's assets are exempt or otherwise secured by valid liens, something known as a "no-asset" report will be filed, such that no liquidation and distribution among unsecured creditors will take place.

This doesn't serve to derail the Chapter 7 process. Indeed, the majority of Chapter 7 filings are no-asset cases.

However, should the bankruptcy trustee find non-exempt assets, the process typically unfolds a bit differently.

Regardless of the classification of assets, the bankruptcy trustee will hold what is known as the meeting of creditors within 21 to 40 days after the initial filing of the Chapter 7 petition. This is essentially a hearing in which the individual filing for Chapter 7 will be put under oath, and asked questions about their property and financial affairs by both the bankruptcy trustee and their creditors.

If the bankruptcy trustee has earlier determined that bankruptcy filer has nonexempt assets, the unsecured creditors have 90 days after the first date is set for the meeting of creditors to file their claims of proof with the court. No such proofs of claim would otherwise be needed if the bankruptcy trustee determines there are no assets.

To summarize, Chapter 7 is indeed an option if the entirety of a person's assets are either exempt or secured by underlying liens.

If you have questions about the Chapter 7 process, including whether it is a viable option, consider speaking with an experienced legal professional to learn more.    

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