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Chapter 7: “Liquidation”

In a Chapter 7 liquidation bankruptcy, some of your assets may be turned over to the bankruptcy trustee and sold (liquidated) to pay your creditors. Once your non-exempt property has been liquidated (if any) the bankruptcy will eliminate many kinds of debts, such as medical bills, credit card debt, personal loans and unsecured loans.

New York State Law provides a list of items that cannot be touched by your creditors or the bankruptcy trustee, and are considered to be “exempt” in the bankruptcy process. You get to keep all property that is “exempt”. In many cases, all property you own is exempt and you have what is known as a “no asset” case. Examples of exempt property are:

  • All of your wearing apparel
  • All of your home furnishings
  • Your residence (up to $50,000 in equity per owner)
  • Your IRA/401(k)
  • Your automobile (up to $2,400 in equity)

If you have secured creditors (for example, a mortgage or car loan) you have a choice of:

  1. surrendering the property to the creditor (eliminating the debt);
  2. keep the property and continue to make the required payments (if the creditor agrees); or
  3. paying the creditor a lump sum (known as redeeming the property).

Income restrictions

You will not be able to file a chapter 7 bankruptcy if your income is too high. If your income is higher than the median income for a similarly sized family in your area, you may be required to a file a Chapter 13 “reorganization” bankruptcy. The federal government maintains and publishes a Median Income Chart for all states. The allowable amount is updated from time to time.