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CHAPTER 7 Bankruptcy
Chapter 7 Liquidation (“Fresh Start”) is the most common form of consumer bankruptcy. It is generally the best option for consumers with smaller amounts of debt and those who do not have a lot of valuable property.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start“. The bankruptcy discharge has the effect of extinguishing the debtor’s personal liability on dischargeable debts. Although the filing of an individual Chapter 7 petition usually results in a discharge of debts, an individual’s right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not eliminate a lien or mortgage on property.
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A Chapter 7 bankruptcy generally takes about four to six months from start to finish and usually only takes one trip to a 341 creditor’s meeting.
The filing of a bankruptcy case puts into effect an “automatic stay“. The automatic stay immediately stops your creditors from trying to collect what you owe them. So, at least temporarily, creditors will not be able to go after your car, house or other property, or cut off your utility service or welfare benefits. Further, the automatic stay will stop most legal proceedings that may be pending against you and will stop all collection efforts. This means that as soon as your case is filed, many of your financial problems are usually over.
After filing, most people can keep property known as exempt property. There are sometimes items of property that are non-exempt, and they are part of the bankruptcy estate. While most people do not have valuable non-exempt property, if they do, it could be sold by the trustee to pay off your debts. You have control, with a few exceptions, of property or income that you acquire after you file for bankruptcy.
A bankruptcy court operates through an appointed person called a “bankruptcy trustee“. The trustee goes through the papers that you file with the court, asks you a few questions at a short hearing called a “341 creditors meeting“. Creditors may attend this meeting, but seldom do so. Creditors usually only attend if you have a lot of valuable assets. After the meeting, the trustee will determine if you have any non-exempt property. If so, he then collects the non-exempt property that can be taken from you (your non-exempt property) to be sold to pay creditors. You can surrender the property to the trustee or keep it by paying the trustee its fair market value. Very few people actually lose property in a Chapter 7 bankruptcy.
If you have pledged property as collateral for a loan, the loan is called a secured debt. Secured debts are only dischargeable if you surrender the pledged property. The most common examples of collateral are houses, and motor vehicles. If you want to keep your house or automobile, you must keep your payments current when and after you file.
If you’re a party to a contract or lease, and you or the other party still has obligations under it, the trustee may cancel it unless the contract will produce assets for the creditors. If it’s canceled, you and the other party to the contract are cut loose from any contractual obligations.
At the end of the bankruptcy process, most of your debts are eliminated by the discharge. You no longer legally owe any of the debts listed on your petition. You cannot file for Chapter 7 bankruptcy again for another eight years from the date of your bankruptcy discharge.
Bankruptcy is about starting over, and at Gopal & Pedigo, PC we can make a difference. If you are even thinking of Bankruptcy, contact a bankruptcy attorney for your FREE debt evaluation.