WHAT IS CHAPTER 7?
Chapter 7 bankruptcy is currently the most commonly used form
of bankruptcy. A Chapter 7 bankruptcy may be filed once every six years, not
every seven years as most people believe. A simple illustration of a chapter 7
bankruptcy case is as follows:
- A debtor files a chapter 7 petition praying for relief,
which includes schedules and statements of his or her financial affairs
- Excluding exempt property (personal property the debtor
is allowed to keep under either state or federal bankruptcy laws), the
debtor "hands over" their assets to the bankruptcy court
- The trustee examines the bankruptcy estate, sells or
liquidates any nonexempt assets, and distributes the proceeds, if any, to
the creditors according to their claim priority
- The debtor receives a "discharge" of their debts from the
bankruptcy court
Contrary to what many believe, in a Chapter 7 proceeding you
do not get to keep everything and walk away debt free. As was mentioned above,
depending on your state's bankruptcy laws, you can use either state or federal
exemptions to determine what property you can keep, and what property must be
handed over to the court. Also, certain debts CANNOT be discharged in
bankruptcy, they are:
- Taxes or fines and penalties owed to governmental unit
- Money, property, or services or credit obtained
fraudulently
- "Luxury goods or services" with a sum value of more than
$500 incurred within 40 days before the filing of your bankruptcy petition
- Credit card "cash advances" totaling more than $1000
taken within 20 days before the filing of the bankruptcy petition
- Alimony and child support
- Student loans
- Debts resulting from driving while intoxicated (drugs or
alcohol)
- Damages for willful and malicious injury to another
entity or their property
- Any debts not disclosed in the bankruptcy petition
So, as you can see, bankruptcy is not a "cure all" remedy for
your financial problems.
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