Chapter 7 bankruptcy is a federal liquidation proceeding — designed to give honest debtors a fresh financial start.

The calls follow patterns. The divorced parent whose ex's failure to pay support has driven her credit cards to maximum and her checking account into overdraft after overdraft, and who hasn't slept a full night in six months. The construction worker whose work-related back injury has put him out of work for fourteen months and who has $80,000 in medical bills the workers' comp carrier has refused to authorize. The 58-year-old whose business closed during a difficult year and who has $140,000 in personal credit-card debt the business never paid back. The widow whose late husband's medical bills from his final illness exceed the death benefit by $60,000. The retired schoolteacher whose pension and Social Security are her only income and who is being garnished by an old judgment she didn't know existed.

Chapter 7 is a federal liquidation proceeding under the Bankruptcy Code, with its own procedure, its own arithmetic, and its own pace. The work is to determine whether Chapter 7 is the right tool, plan the exemption election, prepare the petition correctly, and shepherd the case through to discharge — typically four to six months from filing to discharge.

How Chapter 7 works — start to discharge in four to six months.

Chapter 7 is a federal liquidation proceeding under 11 U.S.C. §§ 701-784source administered in the United States Bankruptcy Court for the District of New Jersey. The mechanics:

1. Petition filing. Schedules of assets, liabilities, current income, current expenses, and recent financial history; Statement of Financial Affairs; means-test calculation. The petition triggers the automatic stay under 11 U.S.C. § 362source the instant it is filed.
2. Trustee appointment. A Chapter 7 trustee is randomly assigned. The trustee's job is to identify any non-exempt property and administer it for creditors. Most consumer Chapter 7s are "no-asset" cases — exemptions cover everything.
3. 341 Meeting of Creditors. Approximately 30-45 days after filing. The trustee asks the debtor questions under oath; creditors may appear but rarely do in consumer cases. Most 341 meetings are now remote.
4. Discharge. Approximately 60-90 days after the 341 meeting, the court enters the discharge order under 11 U.S.C. § 727source, eliminating personal liability on the discharged debts.

The means test — qualifying for Chapter 7.

Under 11 U.S.C. § 707(b)source, primarily-consumer debtors must satisfy the means test to qualify for Chapter 7. The test compares the debtor's income (averaged over the six months before filing) to the median income for the household size in New Jersey:

• Below median income. The debtor automatically passes the means test.
• Above median income. The debtor runs the second part of the test, comparing disposable income (after allowed expenses, often based on IRS local and national standards) to a threshold. Debtors who fail the second part are presumed to have abused Chapter 7 and may have their case dismissed or converted to Chapter 13.

Primarily-business debtors (more than half the debts are business-related) are NOT subject to the means test and may file Chapter 7 regardless of income. The line between consumer and business debt is sometimes contested — large medical bills, for example, may be characterized differently depending on the underlying treatment context. We evaluate the means-test eligibility at the consultation.

The automatic stay — immediate collection halt.

The automatic stay under 11 U.S.C. § 362source takes effect the instant the petition is filed. The stay prohibits nearly all collection action:

• Phone calls, letters, emails, texts from creditors.
• Lawsuits and continuation of pending lawsuits.
• Wage garnishments and bank levies.
• Foreclosure (subject to relief-from-stay in default cases).
• Repossession of vehicles and other secured property.
• Utility shut-offs (for 20 days, subject to deposit).
• Eviction (limited, with exceptions; the protection is narrower than for other actions).

The stay is automatic — no court order needed; the filing itself triggers it. Creditors that violate the stay are subject to actual damages, attorney's fees, and (in some cases) punitive damages under 11 U.S.C. § 362(k).

Secured creditors can seek relief from stay under 11 U.S.C. § 362(d) where the debtor is in default and the creditor's interest is not adequately protected. The bankruptcy court typically grants relief within 60-90 days for a debtor in default on a secured obligation — at which point foreclosure or repossession can resume. To keep secured property through Chapter 7, the debtor typically must either be current and stay current, reaffirm the debt under 11 U.S.C. § 524(c), or redeem under 11 U.S.C. § 722.

Exemptions — what the debtor keeps.

New Jersey debtors may elect either the federal exemptions under 11 U.S.C. § 522(d)source or NJ state exemptions under N.J.S.A. 2A:17-19source and related state-law exemptions. The choice depends on the asset profile:

• Federal exemptions include a homestead exemption protecting equity in a primary residence; a vehicle exemption protecting equity in one motor vehicle; a household-goods exemption protecting ordinary furniture and personal items (per-item limits); a wildcard exemption that can apply to any property; and a tools-of-the-trade exemption. Dollar amounts adjust periodically by the Judicial Conference.
• NJ state exemptions under N.J.S.A. 2A:17-19 are more modest, with no homestead exemption — making them generally less favorable for most consumer Chapter 7 debtors with home equity.

Retirement accounts are protected regardless of exemption election: 401(k), 403(b), and similar ERISA-qualified plans are not even property of the bankruptcy estate. IRA accounts (traditional and Roth) are exempt up to $1,711,975 under 11 U.S.C. § 522(n) (effective April 1, 2025). Pension and similar retirement assets are protected.

Pre-filing exemption planning is significant work — assessing the asset profile, electing the right exemption set, evaluating whether any pre-filing actions are appropriate (with careful attention to fraudulent-transfer rules and the 60-day-before-filing lookback under 11 U.S.C. § 522(o)/(p)). Pre-filing transfers can be unwound by the trustee under the avoidance powers; intentional fraudulent transfers can lead to denial of discharge under 11 U.S.C. § 727(a)(2). Filing without proper pre-filing planning can produce avoidable losses.

Discharge — what debts are eliminated.

Most unsecured debt is discharged in Chapter 7. The discharge under 11 U.S.C. § 727 eliminates personal liability on:

• Credit-card debt.
• Medical bills.
• Personal loans (signature loans, payday loans, online lending).
• Deficiency balances on repossessed vehicles.
• Old utility bills.
• Most lawsuit judgments.
• Old rent.
• Most other general unsecured debt.

Several categories of debt are NOT dischargeable under 11 U.S.C. § 523source and survive bankruptcy:

• Student loans — with narrow exceptions for "undue hardship" under Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). Federal student-loan borrowers should also evaluate income-driven repayment and federal forgiveness programs before relying on bankruptcy for student-loan strategy.
• Recent income taxes — generally, taxes due within the prior three years are not dischargeable. Older taxes may be dischargeable subject to specific timing rules.
• Child support and alimony (domestic support obligations).
• Criminal fines and restitution.
• Debts arising from fraud, embezzlement, or willful and malicious injury.
• Debts not listed in the petition (the omitted-creditor problem).
• Recent credit-card debt for luxury goods (presumption against discharge for purchases above a statutory amount in the 90 days before filing).

Chapter 7 vs. Chapter 13 — when to choose which.

Chapter 7 and Chapter 13 are different tools for different situations. Chapter 13 may be required or preferred where:

• The debtor's income exceeds the Chapter 7 means-test threshold.
• The debtor wants to keep a house with mortgage arrears and cure them over time (the "cramdown" under 11 U.S.C. § 1322 lets arrears be paid over the plan term).
• The debtor wants to keep a vehicle with a loan and the 910-day rule applies (cars financed within 910 days of filing must be paid at full contract terms in the plan).
• The debtor has non-dischargeable debts (taxes, support arrears) that can be paid through the plan with the automatic stay's protection.
• The debtor has assets exceeding exemption limits but wants to pay off the non-exempt portion through the plan rather than surrender the assets.

The chapter choice is one of the most important decisions in the case. We evaluate both at the consultation.

Credit impact and recovery.

Chapter 7 may be reported for up to 10 years from filing under the Fair Credit Reporting Act, 15 U.S.C. § 1681csource. The score impact at filing can be substantial, but recovery depends on income, payment history, utilization, and post-discharge credit behavior. Discharged debts are generally marked "discharged in bankruptcy" with $0 balances. Some debtors qualify for secured credit cards within months. Mortgage eligibility depends on the loan program, waiting period rules, credit rebuild, and income stability.

The Chapter 7 process at Simon Law Group.

1. Initial consultation. Review of the debt picture, income, assets, and household situation. Means-test estimate. Chapter 7 vs. Chapter 13 evaluation. Fee structure explained.
2. Engagement. Written engagement letter. Required pre-filing credit-counseling course (under 11 U.S.C. § 109(h)) — completed online or by phone in about an hour.
3. Information gathering. Six months of paycheck stubs; two years of tax returns; bank statements; statements for all debts; deed and mortgage statements; vehicle title and loan statements; retirement-account statements; recent appraisals where relevant.
4. Petition preparation. Schedules, Statement of Financial Affairs, means-test calculation, exemption claims. Review with the client.
5. Filing. Petition filed electronically. Automatic stay takes effect.
6. 341 Meeting of Creditors. Approximately 30-45 days after filing. The Firm attends with the client; most consumer 341s are remote.
7. Post-341 financial-management course. Required under 11 U.S.C. § 111 — online or by phone in about an hour.
8. Reaffirmation, redemption, or surrender decisions on secured debts.
9. Discharge order. Approximately 60-90 days after the 341 meeting.

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