A Chapter 7 bankruptcy seeks to immediately discharge all debts listed on the creditor schedules. The bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds to pay creditors, based on predetermined seniority.  The federal bankruptcy and Utah Code allow the debtor to keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets.

A Chapter 7 case begins with the debtor filing a petition with the bankruptcy court in the area where the individual lives. In addition to the petition, the debtor must also file with the court:

(1) schedules of assets and liabilities;
(2) a schedule of current income and expenditures;
(3) a statement of financial affairs; and
(4) a schedule of executory contracts and unexpired leases.

Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case. The debtor must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. A husband and wife may file a joint petition or individual petitions.

The bankruptcy court charges a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. The fees must be paid to the clerk of the court upon filing.  If a joint petition is filed, only one filing fee, one administrative fee, and one trustee surcharge are charged.

In order to complete the forms that make up the petition, the debtor must provide the following information:

1. A list of all creditors and the amount and nature of their claims;

2. The source, amount, and frequency of the debtor's income;

3. A list of all of the debtor's property; and

4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must include the above information regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

One schedule that a debtor will file is a schedule of "exempt" property. The bankruptcy and Utah code allows protection of some property from the claims of creditors.

Filing a petition under Chapter 7 "automatically stays" most collection actions against the debtor or the debtor's property.  Filing the petition does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Between 20 and 40 days after the petition is filed, the case trustee will hold a meeting of creditors, known as a 341 hearing. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions. Within 10 days of the creditors' meeting, the trustee will report to the court whether the case does not qualify under the means test.

It is important for the debtor to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The bankruptcy code requires the trustee to ask the debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential consequences of seeking a discharge in bankruptcy.

To qualify for filing under Chapter 7, the debtor must pass the means test  The Chapter 7 means test is a formula applied to determine whether or not the consumer should have enough money available to make some minimal payment to creditors in a Chapter 13 plan. The goal is to reserve Chapter 7 bankruptcy for those who have no means to pay, and to push those who have available income into Chapter 13 bankruptcy plan so that their creditors will receive at least partial payment.

The first step in the Chapter 7 bankruptcy means test compares your income to the median Utah family income for a family the same size as yours.

If your income is higher than the median income, it doesn't necessarily mean that you can't file for Chapter 7 bankruptcy; it just triggers the second step in the test. 

The second step breaks down into several smaller steps. Certain allowable expenses are subtracted from your income to find your "disposable income." If your projected disposable income over the next five years totals less than $6,000 ($100/month), you "pass" and can file under Chapter 7. 

If your disposable income is greater than $10,000 over the next five years, a presumption arises that you don't need to file for Chapter 7 bankruptcy, and you will only be allowed to do so if you can demonstrate special circumstances.

If disposable income is between $6,000 and $10,000 over the next five years, another calculation is required. This final calculation compares your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over that five years is greater than 25% of your unsecured, non-priority debts, you will find yourself in the same circumstances as if you'd had more than $10,000 in disposable income. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you "pass" the means test. 

A bankruptcy attorney can run the numbers for you and tell you whether or not you qualify for Chapter 7 bankruptcy under the means test. The calculation can be confusing, not only because of the numerous steps that may be involved, but because it requires an understanding of the rules concerning how your income is calculated for means test purposes, which debts are classified as unsecured and non-priority, and a knowledge of the IRS allowable expense figures in various categories.

No individual may be a debtor under Chapter 7 or any chapter of the bankruptcy code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. There are exceptions in emergency situations.

One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. However, a bankruptcy discharge does not extinguish a lien on property.

There are several alternatives to chapter 7 relief.

Individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the bankruptcy code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to "catch up" past due payments through a payment plan.

Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors.

The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow and are construed against the moving party. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or financial records; failed to explain satisfactorily any loss of assets; committed a bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court; fraudulently transferred, concealed, or destroyed property that would have become property of the estate; or failed to complete an approved instructional course concerning financial management.

Secured creditors may retain some rights to seize property securing an underlying debt even after a discharge is granted. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed, even though the debt would otherwise be discharged in the bankruptcy. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is entered. The debtor must sign a written reaffirmation agreement and file it with the court. The Bankruptcy Code requires that reaffirmation agreements contain an extensive set of disclosures. Among other things, the disclosures must advise the debtor of the amount of the debt being reaffirmed and how it is calculated and that reaffirmation means that the debtor's personal liability for that debt will not be discharged in the bankruptcy. The disclosures also require the debtor to sign and file a statement of his or her current income and expenses which shows that the balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship, and the court may decide not to approve the reaffirmation agreement. Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.

If the debtor was represented by an attorney in connection with the reaffirmation agreement, the attorney must certify in writing that he or she advised the debtor of the legal effect and consequences of the agreement, including a default under the agreement. The attorney must also certify that the debtor was fully informed and voluntarily made the agreement and that reaffirmation of the debt will not create an undue hardship for the debtor or the debtor's dependants. The bankruptcy code requires a reaffirmation hearing if the debtor has not been represented by an attorney during the negotiating of the agreement, or if the court disapproves the reaffirmation agreement. The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists.

An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt.

The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor acquired property that is property of the estate and knowingly and fraudulently failed to report the acquisition of such property or to surrender the property to the trustee, or if the debtor (without a satisfactory explanation) makes a material misstatement or fails to provide documents or other information in connection with an audit of the debtor's case.