No one plans to wind up in over their heads in debt, but life happens and every consumer deserves a fresh start. That’s why chapter 7 bankruptcy can be such a helpful tool for debtors who don’t believe they’ll be able to repay their debt.
How Does it Work?
Unlike chapter 13 bankruptcies, chapter 7 bankruptcies don’t involve the establishment of a repayment plan. Instead, an assigned trustee simply gathers up any of assets the debtor has that are not exempt under the bankruptcy code and sells them off to repay creditors. Some of this property might be subject to mortgages or liens instead of being sold off outright.
In order to be eligible for chapter 7 bankruptcy, the debtor must have sought help from an approved credit counseling agency within the prior 180 days. He or she must also not have had another bankruptcy claim dismissed in court either voluntarily or due to the debtor’s willful failure to comply.
How Does it Work?
Once a debtor has filed for this form of bankruptcy, his or her debts will be discharged and the person filing will no longer have any liability for them. However, it is important to understand that there are some types of debt that cannot be discharged, such as liens on a property. In order to file for this type of bankruptcy, debtors must collect a list of all of their creditors and claims, proof of amount, source, and frequency of income, a list of property, and a detailed description of monthly living expenses.
What is Exempt?
Some kinds of property are exempt under federal or state bankruptcy law. The best way to for an individual debtor to determine what kind of property is exempt is to hire a bankruptcy attorney. Doing so won’t just give debtors the peace of mind of knowing in advance what property they will be required to give up, but will also allow them to seek legal advice prior to filing regarding eligibility and bankruptcy requirements.
What Debt is Discharged?
A chapter 7 discharge is subject to exceptions, although more than 99 percent of debtors who file for this type of bankruptcy do receive a complete discharge, usually within 60 to 90 days of the first meeting of creditors. Courts may deny debtors a discharge if they fail to produce adequate financial records, have fraudulently concealed or transferred property that would otherwise have been part of the estate, have committed perjury, or have failed to complete an approved financial management course.