Chapter 7 Bankruptcy Debt ReliefChapter 7 bankruptcy debt relief, otherwise known as “entitled liquidation”, is an orderly, court-supervised procedure in which a trustee, assigned by the bankruptcy court, takes over the assets owned by a debtor. The trustee then reduces the assets to cash and from that cash, makes payment distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. The actual amount of debtor property that is exempt is based on the geographic location of the bankruptcy. However, because there is usually little or no nonexempt property in most chapter 7 cases, there is often no actual liquidation of the debtor's assets. These cases are called "no-asset cases."A creditor holding an unsecured claim will get a distribution payment from trustee out of the bankruptcy estate only if the case is an asset case (which means a case where the debtor has actual assets) and the creditor files a proof of claim with the bankruptcy court in the debtor’s bankruptcy action. In most chapter bankruptcy 7 cases, if the debtor is an individual, he or she receives a chapter 7 bankruptcy discharge that releases him or her from personal liability for certain dischargeable debts. The debtor normally receives this discharge just a few months after the petition for bankruptcy petition is filed. In 2005 amendments to the Bankruptcy Code were enacted, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which require the application of a "means test" to determine whether individual consumer debtors qualify for bankruptcy debt relief under chapter 7. This means test was created in an effort by the Congress to stop bankruptcy abuse by debtors who had the ability to pay their creditors. If such a debtor's income is in excess of certain thresholds, the debtor may not be eligible for chapter 7 debt relief.
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