Chapter 7 is known as the fresh start case. It doesnt mean everything on the Chapter 7 bankruptcy is going to be eliminated, but the overwhelming reason for filing a bankruptcy Chapter 7 is someone who doesnt have a lot in terms of money, doesnt make a lot of money, and doesn’t have a lot in terms of property. It doesnt mean that they cant have a house or a car. It just means that they dont have a lot of equity or ownership in the property. They might have $10,000 in equity or $20,000 in equity. Very importantly, equity is the difference between what the market value is in what they owe. So if a house is worth $200,000, and they owe $150,000 to pay it off, their equity, their ownership portion is $50,000. Thats going to be an important consideration later when you are determining whether or not they should do a 7 because they can protect a certain amount of property and everything and still do a 7. Thats why you hear people say oh, I did a Chapter 7 and I kept my house and I kept my car, I kept all of my furniture, I kept my 401(k). Yeah, thats because those items did not have significant equity. If you had a lot of equity, and we will get to what the limits are in a minute, then you cant do a 7 because if you do, you are basically setting them up. The trustee is going to take that asset.
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