Chapter 7 Bankruptcy
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
Chapter 7 Bankruptcy
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
How Does Chapter 7
Bankruptcy Work?
When you file for Chapter 7 bankruptcy, the court places an automatic temporary stay on your current debts. This stops creditors from collecting payments, garnishing wages, foreclosing on your home, repossessing property, evicting you, or turning off your utilities. Instead, the court will take legal possession of your property and appoint a bankruptcy trustee to your case.
The trustee’s job is to review your finances and assets and oversee your Chapter 7 bankruptcy. For example, they will sell a specific property the bankruptcy won’t let you keep (nonexempt property) and use the proceeds to repay your creditors. The trustee will also arrange a meeting between you and your creditors—called a creditor meeting—where you’ll go to a courthouse and answer questions about your filing.
The list of property you don’t have to sell or turn over to creditors (exempt property), and the total value you can exempt, varies by state. Some states let you choose between their exemption list and the federal exemptions. But most Chapter 7 bankruptcy cases are “no asset” cases, meaning all of the person’s property is exempt or there’s a valid lien against the property.
At the end of the process, the court will discharge your remaining debts approximately four to six months from your initial filing (meaning you don’t need to pay them anymore). However, some types of debts generally aren’t dischargeable through bankruptcy, including child support, alimony, court fees, some tax debts, and most student loans.
Begin by answering the following
questions as objectively and honestly as possible:
- Am I behind on my car payments?
- Am I behind on my mortgage payments and if so, by how much?
- Are my creditors calling me or my family members?
- Am I borrowing from one credit card to payoff another?
- Am I only making minimal payments on my credit card(s)?
- Am I being sued for failing to pay a debt?
- Are my wages being garnished?
- Is my bank account being seized?
- Do I have any judgment liens on my real state?
If you’ve answered “yes” to any of these questions, you need to consult with a bankruptcy attorney to determine whether a Chapter 7 or Chapter 13 bankruptcy is right for you.
What Can I Eliminate?
- Credit card debt
- Medical bills
- Personal loans not secure by collateral
- Older tax obligations
- Breach of contract or negligence-related debt