Many people assume Chapter 7 bankruptcy involves a bankruptcy payment plan, but this isn’t accurate. Chapter 7 works through asset liquidation, not monthly payments to creditors.
We at Hurst Law Firm, P.A. see this confusion regularly among Memphis residents considering bankruptcy relief. Understanding the true structure of Chapter 7 can help you make better financial decisions.
How Does Chapter 7 Liquidation Work
Chapter 7 bankruptcy operates through a straightforward liquidation system that eliminates your debts without monthly payments to creditors. The appointed bankruptcy trustee takes control of your non-exempt assets and sells them to generate funds for creditor repayment. Tennessee exemptions protect essential items like your primary residence up to $25,000, one vehicle up to $6,000, and personal property worth $10,000. Most Memphis residents keep their basic necessities while they obtain debt relief.
The Trustee Asset Sale Process
The bankruptcy trustee reviews your financial documents within 30 days of your petition and identifies any valuable non-exempt property for liquidation. Most Chapter 7 cases in Tennessee are no-asset cases, which means debtors have no property worth sale after exemptions apply. The American Bankruptcy Institute reports that approximately 96% of Chapter 7 cases result in zero distribution to creditors because debtors own only exempt property. When assets do exist, the trustee sells them at fair market value and distributes proceeds to creditors based on priority rules that federal law establishes.
Quick Discharge Timeline
Chapter 7 bankruptcy moves rapidly from petition to debt discharge, typically within 90 to 120 days in Memphis courts. You attend one meeting of creditors approximately 30 days after you file, where the trustee asks basic questions about your finances under oath. The discharge order arrives 60 days later and permanently eliminates most unsecured debts (credit cards, medical bills, and personal loans). This speed advantage makes Chapter 7 attractive for Memphis residents who need immediate debt relief rather than years of payment obligations.
While Chapter 7 focuses on asset liquidation rather than payment plans, certain costs and fees still require your attention before and during the bankruptcy process.
What Are the Real Costs of Chapter 7 Bankruptcy
Chapter 7 bankruptcy in Memphis requires upfront costs that you must pay regardless of the liquidation outcome. The Western District of Tennessee Bankruptcy Court charges a mandatory filing fee of $338, which includes a $245 case filing fee, $78 administrative fee, and $15 trustee surcharge. These court costs cannot be waived, though you can request to pay them in up to four installments if your income falls below 150% of the federal poverty guidelines.
Attorney Fees in Memphis Range From $1,200 to $2,500
Memphis bankruptcy attorneys typically charge between $1,200 and $2,500 for Chapter 7 representation, with most firms requiring full payment before they file your petition. Attorney fees within this range vary based on case complexity and firm reputation. Some attorneys charge additional fees for credit counseling courses, document preparation, or court appearances, so ask for a complete fee breakdown upfront. The National Association of Consumer Bankruptcy Attorneys reports that attorney fees represent the largest expense in most Chapter 7 cases, often exceeding the total amount of debt relief for smaller cases.
Payment Plans Make Chapter 7 Accessible
Most Memphis bankruptcy attorneys accept payment plans that spread legal fees over 30 to 90 days before they file your case. This arrangement gives you time to gather funds while attorneys can stop creditor harassment through informal negotiations. Some firms offer zero-interest financing, while others partner with legal financing companies that provide loans specifically for bankruptcy cases (though these loans carry interest rates between 8% and 15%).
Attorney Fees Survive Bankruptcy Discharge
You cannot discharge attorney fees for your current bankruptcy case, so these debts survive even if you receive a discharge for other obligations. This rule applies to all legal representation costs incurred during your Chapter 7 proceeding. Courts enforce this policy to prevent abuse of the bankruptcy system and maintain attorney accountability.
While Chapter 7 eliminates most debts through liquidation, certain situations still require monthly payments to protect specific assets or handle priority obligations.
When Do You Still Make Payments in Chapter 7
Chapter 7 bankruptcy eliminates most debts through liquidation, but three specific situations require ongoing monthly payments to protect your assets or handle obligations that survive discharge. Reaffirmation agreements allow you to keep secured property like vehicles when you continue loan payments after bankruptcy, though Tennessee bankruptcy courts approve only 23% of reaffirmation requests (according to Administrative Office of the U.S. Courts data). You must demonstrate that the debt serves your best interests and won’t create undue hardship, which means your monthly income must exceed expenses by at least the reaffirmation payment amount.
Mortgage Payments Continue Outside Bankruptcy
Homeowners who want to keep their primary residence must maintain current mortgage payments throughout and after Chapter 7 proceedings, even though the personal liability for the debt gets discharged. This practice, called ride-through, works because mortgage liens survive bankruptcy and foreclosure remains possible for payment defaults. Memphis homeowners successfully retain their homes in approximately 85% of Chapter 7 cases where they stay current on payments, based on Western District of Tennessee court records.
Priority Debts Require Payment Plans
Priority debts like recent income taxes, child support, and student loans require payment plans after discharge because these obligations cannot be eliminated through bankruptcy. The Internal Revenue Service reports that tax debts older than three years may qualify for discharge if you filed returns on time, but newer obligations survive and often require installment agreements that can extend up to six years (depending on the total amount owed).
Student Loans Restart After Discharge
Student loan payments restart immediately after Chapter 7 discharge unless you prove undue hardship through the Brunner test, which requires you to demonstrate poverty, persistence of financial problems, and good faith efforts to repay. Federal student aid data shows that fewer than 1% of bankruptcy debtors successfully discharge student loans, which makes payment arrangements the practical solution for most Memphis residents with education debt.
Final Thoughts
Chapter 7 bankruptcy eliminates debts through asset liquidation rather than the bankruptcy payment plan Chapter 7 structure that many Memphis residents expect. This liquidation approach wipes out most unsecured debts within four months without monthly payments to creditors. The process differs fundamentally from Chapter 13 reorganization plans that require years of structured payments.
The total costs for Chapter 7 in Memphis include the $338 court filing fee plus attorney fees that range from $1,200 to $2,500. These upfront expenses represent your primary financial obligation, not monthly payments that continue after discharge. Most attorneys offer payment arrangements before they file your case, but you must complete these payments since legal fees survive bankruptcy discharge (unlike most other debts).
We at Hurst Law Firm, P.A. have guided Memphis residents through Chapter 7 bankruptcy cases for decades. Professional legal guidance becomes valuable when you navigate court requirements, protect exempt assets, and understand which debts survive discharge in your specific situation. The right attorney can help you determine whether Chapter 7 liquidation or Chapter 13 payment plans better serve your financial recovery goals.
