Most people have heard of bankruptcy but many are curious as to how bankruptcy works. For most individuals there are two types of bankruptcy, chapter 7 and chapter 13. Chapter 7 is also known as a liquidation bankruptcy and chapter 13 may be referred to as a reorganization. In both types, individuals can be relieved of significant amounts of debt.
Chapter 7, called chapter 7 because it is set forth under chapter 7 of the bankruptcy code, typically provides a debtor with a fresh start, free of most prior debt. In theory a chapter 7 is liquidation of assets but in most cases debtors can keep most, if not all, of their assets because they are entitled to claim certain exemptions on basic assets like clothing, household goods, vehicles and the debtors' homestead (of course there are limitations to exemption amounts.
A chapter 7 starts with the filing of a bankruptcy petition. The filing of the petition puts into effect the automatic stay which stops ALL collection efforts of creditors. No creditor, including the IRS or judgment creditors, can take any action to collect on a debt. Any garnishment that has started must stop immediately, even a scheduled foreclosure sale will be stayed.
Roughly 30 days after a petition is filed, the debtor will attend a meeting of creditors. At the meeting of creditors the debtor will be examined, under oath, about their bankruptcy petition, by an appointed trustee. The trustee is an attorney who represents the interests of the creditors. Their job, in part, is to determine whether the debtor has non-exempt assets that can be liquidated to pay creditors.
After the meeting of creditors, the creditors have roughly 60 days to object to discharge of debts owed by the debtor. Most debts are dischargeable and regular creditors often have no grounds to object. For a creditor to object, a creditor must be believe (and ultimately prove) that the debt falls into certain special categories of debt that are non-dischargeable. Non-dischargeable debts that would require an objection are typically based in fraud or some other malfeasance.
Certain creditors do not have to object to discharge because the type of debt is not dischargeable unless proven otherwise by the debtor. Student loan debt, maintenance and child support obligations and most tax debt are not dischargeable and the creditor need not file an objection to dischargeability.
Once the objection period has run, and no objections are filed, the court will review the case and issue a discharge order. The order of discharge, informs creditors that the debtor is relieved of the liability to the creditor and the creditor may no longer take any action to collect on the debt.
If a debtor has made an agreement for turnover of information or assets to the appointed trustee, the discharge order does not relieve the debtor of the obligation to comply with the agreement. Failing to comply with an agreement with the trustee can be grounds for revocation of discharge.
If you are wondering if chapter 7 bankruptcy can help you attain a fresh start by eliminating credit card, medical debt, foreclosure deficiencies, repossessed vehicle deficiencies or any other unsecured debt then contact Greenwald & Hammond for a free bankruptcy consultation. We are here to help people understand bankruptcy and make informed decisions about their financial future.
Submitted by:
Mindy Greenwald, Esq.
Bankruptcy Attorney
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