When a Debtor chooses to liquidate under Chapter 7, he or she relinquishes all non-exempt property to a bankruptcy trustee. The Trustee, in turn, liquidates the property and distributes the proceeds (less his or her fee) to the Debtor’s unsecured creditors. In return, the Debtor is relieved of some or all of his or her debt. There are exceptions to the general rule on dischargeability of unsecured debt. If the Debtor engages in certain types of criminal or fraudulent behavior (e.g., concealing records), he or she may not receive a discharge. And certain types of debt (such as child support) may not be discharged under any circumstances.The value of property subject to exemption varies from state to state. Ohio’s exemption regime is exclusive and the use of federal exemptions is not permitted.As to the waiting period between bankruptcy cases, a Debtor must wait at least eight years after filing a Chapter 7 case before filing another Chapter 7 case (assuming there was a discharge of debt in the first case). However, that Debtor may file a Chapter 13 case at any time. All that matters in the second case is whether four years have passed since the first filing. If less than four years have passed, the Debtor can maintain the case but will not receive a discharge. Some Debtors jump into a Chapter 13 case after a Chapter 7 case for the sole purpose of saving their home from foreclosure.
But time alone is not the only consideration in deciding whether to file under Chapter 7 or Chapter 13. In 2005, Congress introduced a “means test” to determine whether a Debtor qualifies for Chapter 7 protection or must instead bring a case under Chapter 13.