Choosing To Change Your Finances

What Is The Purpose Of Chapter 7 Bankruptcy?

by Luis Hawkins

Petitioning for protection under Chapter 7 bankruptcy law is widely considered a big step to take. In particular, Chapter 7 is intended to liquidate a large percentage of a person's assets in exchange for dismissing their outstanding debts. Given how drastic a choice it is, prospective filers should learn a bit about the purpose of the process and whether it might be the right option for them.

The Goal of Chapter 7 Filings

A Chapter 7 filing is fundamentally about giving a petitioner some hope when there's no light at the end of the tunnel. To be eligible to file for Chapter 7 bankruptcy, your situation needs to be dire enough that there's close to no chance you could get to the point in the next few years that you'd be able to pay down your debts. Consequently, the goal of the petition is to inform the court that you effectively give up.


The main protection that many filers are seeking when they file for Chapter 7 bankruptcy is from continued collection efforts. Once the court has accepted a petition for relief, it will enter a temporary protective order while the judge considers what comes next. This puts an end to all communication with the debtor about the outstanding obligations. If creditors need to communicate with you about debts, they must do so through your legal counsel.

Note, however, that you need to include the names of all applicable creditors in your filings. If you leave someone out, they have the right to continue pursuing collection. That applies even after your bankruptcy goes through.

Settling Up With Creditors

Presuming relief is granted by the court, your assets will be sold to satisfy a portion of your obligations to as many creditors as possible. This is done within reason. That means that certain items that are essential to maintaining your daily life and ability to earn an income will not be liquidated. For example, you won't be asked to get rid of your fridge.

Be aware, though, that the court expects you to make sacrifices. You can't claim that your entire wardrobe, for example, is an essential part of getting by, unless you own very few clothes. Similarly, most filers will have a hard time holding onto more than one vehicle, and the vehicle left behind will likely be the most provably practical one. A couple filing for bankruptcy may be able to hold onto two vehicles that are practical.

To learn more about Chapter 7 bankruptcy law, visit websites like