Chapter 7 Bankruptcy
When your debts are discharged under Chapter 7 Bankruptcy,
it allows you to make a fresh start by eliminating most
of your creditors’ claims, relieving your excessive
debt burden. When the court grants you a discharge after
the filing of a bankruptcy petition in Federal court,
you are released (discharged) from the legal responsibility
of paying your debts. When the bankruptcy petition is
filed, garnishments and lawsuits can be stopped, as
long as the proper legal documents are filed with the
court; you are protected by the Automatic Stay provision
of the Bankruptcy Code.
Your attorney files the petition with the Clerk of
the United States Bankruptcy Court in the region in
which you have resided for the past 6 months. You will
be required to pay a filing fee in addition to fees
charged by your attorney for his or her services. A
list of all your debts and creditors, as well as an
in-depth list of all property you own or will inherit
within six months, insurance policies you own, and money
owed to you must be included in the filed petition.
The petition must also contain a list of property for
which you claim homestead exemption and a thorough statement
of your financial affairs.
Once the bankruptcy petition has been filed, the court
appoints a trustee who works closely with your attorney
and you to handle your case. The trustee presides over
the first meeting of creditors in the bankruptcy proceeding
and will liquidate certain assets that are not exempted
or for which the debts are reaffirmed. The proceeds
from the sale of these assets will be distributed to
your creditors.
All your listed creditors are notified regarding your
bankruptcy petition and are given the opportunity to
file claims on the debts you owe them at a meeting,
which you must attend, set up by the trustee. Any of
your property that is to be sold to satisfy debts is
under the administrative control of the court-appointed
trustee, who will also deliver property owed to secured
creditors for debt resolution. When the property has
been sold, administrative costs are deducted from the
proceeds, and the remaining cash is paid proportionately
to all creditors.
The bankruptcy court holds a hearing to approve discharge
of your debts, or to explain why you are not granted
a discharge. You may reaffirm (agree to pay) certain
debts, with the court's approval, if it is decided it
is in your best interest. For example, if you wish to
keep your car or your house, you can reaffirm the debt
and continue to make payments. You are not obligated
to reaffirm any debts, but if you do, you are legally
responsible to repay the reaffirmed debt.
Bankruptcy claims may be voluntary or involuntary -
most are voluntary.
There are debts that can not be eliminated in a bankruptcy.
They are:
- State and Federal taxes owed within 2 years prior
to filing for bankruptcy.
- Money or items received by fraud or false pretenses.
- Unlisted debts, unless creditor was notified and
had knowledge of bankruptcy filing.
- Child support or alimony.
- Debts incurred by embezzlement, fraud, or larceny.
- Willful or malicious injury to another person or
person's property by the debtor.
- Government imposed fines or penalties, such as
tax penalties.
- Student loans guaranteed by the government or a
nonprofit educational institution, with certain exceptions.
There are limits on how often you can file for bankruptcy.
Your attorney can tell you whether you should file for
Chapter 7 or Chapter 13.
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