Chapter 7 Bankruptcy

What Is Chapter 7 Bankruptcy?

Chapter 7 provides for "liquidation" — the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors. The goal is to leave your debts behind at the end of this process.

In most consumer cases, however, there is little or no nonexempt property to sell. Most Chapter 7 filers keep their home, car, and personal possessions while having qualifying debts eliminated.

How Chapter 7 Works

When you file for Chapter 7, an automatic stay goes into effect immediately. This stops creditor collection activities, including:

IRS collection notices, levies, and wage garnishments (with limited exceptions for recent tax debts).

Creditor lawsuits and judgments.

Foreclosure and repossession actions.

Utility shutoffs and ongoing collection calls.

A Chapter 7 trustee is appointed to review your assets and determine whether any non-exempt property is available for distribution. In most cases, the discharge is granted within a few months and most unsecured debts are eliminated.

Chapter 7 and Tax Debt

Not all tax debts can be discharged in Chapter 7. To discharge a tax debt in Chapter 7, the following conditions must generally be met:

The tax debt must be from a return that was due at least three years ago.

The tax return must have been filed at least two years ago.

The tax assessment must be at least 240 days old.

The tax return must not have been fraudulent, and the debt must not be the result of willful tax evasion.

Tax debts that do not meet these requirements may still be addressed through Chapter 13 or through non-bankruptcy options such as an Offer in Compromise.

Eligibility for Chapter 7

Chapter 7 is available to individuals, partnerships, corporations, and other entities. To qualify, you must:

Pass the means test (for individual consumer debtors), which compares your income to the median income for a household of your size in Utah.

Not have had a prior Chapter 7 discharge within the past eight years.

Not have had a prior Chapter 13 case dismissed for failure to appear or comply in the past two years.

Complete approved credit counseling before filing.

How We Help

Michelle Turpin P.C. helps individuals evaluate whether Chapter 7 is the right choice and handles every aspect of the filing:

Review your financial situation, including tax debts, and identify which debts can and cannot be discharged.

Determine whether Chapter 7 or Chapter 13 is the better fit.

Prepare and file the petition, schedules, and required financial documents.

Represent you at the meeting of creditors and any hearings before the bankruptcy court.