How does Chapter 7 bankruptcy help you get rid of debt?

Chapter 7 bankruptcy helps you get rid of debt by selling off non-exempt property and using the funds to pay off your outstanding balances. This is where you turn over all non-exempt property to a court-appointed trustee. The trustee then sells off the assets to pay back the money you owe to your creditors. Take a look at the following topics to know what Chapter 7 bankruptcy is all about.

• What is Chapter 7 bankruptcy all about?
• What are the reasons to file Chapter 7 Bankruptcy?
• Who qualifies for Chapter 7?
• Who doesn't qualify for Chapter 7?
• What are exempt and non-exempt assets in Chapter 7?
• What kinds of debts are discharged in Chapter 7?
• How does Chapter 7 bankruptcy help debtors?
• What restrictions does Chapter 7 impose on employers and creditors?

What is Chapter 7 bankruptcy all about?

Chapter 7 bankruptcy is the legal process where all your non-exempt assets are sold by the US trustee to pay back your creditors. The sale proceeds are then distributed amongst the creditors as per their individual share. Under Chapter 7 bankruptcy, debtors can get rid of their debts within 3-4 months of filing the bankruptcy.

Check out the following example to have an idea about how Chapter 7 bankruptcy helps you get rid of debt.

The principal amount and interest rate is lowered under court supervision.

Her non-exempt assets are sold off and the recovered money goes toward the payment of debts.

Sally credit score drops by 200 to 250 points but she is able to get rid of her debts.
^Top

What are the reasons to file Chapter 7 Bankruptcy?

You can file Chapter 7 bankruptcy for the following reasons:

• Usually,you can pay off your debts within 3-4 months
• Although you have to give up your non exempt property in Chapter 7 bankruptcy, but it lets you keep most of the necessities. Usually Chapter 7 is filed in cases where the debtor has no assets to lose. ^Top

Who qualifies for Chapter 7?

Chapter 7 bankruptcy can be filed by:

• A resident of the US.
• A debtor who makes less than the average income for their state.^Top

Who doesn't qualify for Chapter 7?

Chapter 7 bankruptcy cannot be filed by:

1. Those who've been granted discharge by Chapter 7 within the last 6 years.
2. Those who've completed a repayment plan under Chapter 13.
3. Individuals who've had their bankruptcy filings dismissed for cause (eg: there were defects in the bankruptcy case like improper prosecution, fraud, etc.) within the last 180 days.
4. Debtors who try to hide, transfer or destroy their properties in order to defraud their creditors or the court trustee appointed for the Chapter 7 case.^Top

What are exempt and non-exempt assets in Chapter 7?

In Chapter 7 bankruptcy, you have to hand over certain properties/ assets to the court appointed trustee. The trustee will sell the assets to repay your debts. However, the trustee will not sell all your properties. You can keep certain assets with you. Check out the examples given below to know about the properties you can retain (exempt property) and the assets you may have to give up (non-exempt property):

Non-exempt property include:

1. Pricey musical instruments provided the debtor is not a professional musician.
2. Family heirlooms.
3. Collections of valuable items like stamps and coins.
4. Bank accounts, bonds, cash and other investments.
5. A second or vacation home
6. A second car or truck.

Exempt property include:

1. Household appliances.
2. Vehicles, up to a certain value.
3. Reasonably priced requisite clothing.
4. Reasonably priced requisite household goods and furnishings.
5. Jewelry, up to a certain value.
6. Pensions.
7. A part of unpaid but earned wages.
8. Equipments (up to a certain value) that are needed in the debtor's profession.
9. Damages awarded for personal injury.
10. A part of equity in the debtor's home.
11. Public benefits, including social security, and unemployment compensation, public assistance (welfare) that is accumulated in a bank account.^Top

What kinds of debts are discharged in Chapter 7?

How does Chapter 7 bankruptcy help debtors?

Chapter 7 can help debtors in the following ways:

1. Stops collector harassment: Once you file bankruptcy Chapter 7, the court notifies your creditors and collection agencies about it. The creditors or collectors should no longer contact you. However, if they continue with harassing calls, the creditor may be sanctioned by the court and have to pay your attorney fees.
2. Stops foreclosure: Chapter 7 filing puts an automatic stay from mortgage foreclosures, until one gets a discharge under this Chapter. However, the mortgage lender can apply to the court and request for relief from automatic stay. The best solution to this problem is to work out a suitable repayment plan with the lender so that one can avoid losing his assets.
3. Removes lien: You can get certain liens removed under Chapter 7 bankruptcy if you can get a court order. Under Chapter 7, you can get rid of federal income tax debts only if the following conditions are met:
   • No tax lien is recorded against your property by the IRS.
   • The tax return must be due for at least 3 years.
   • The tax return should have been filed at least 2 years prior to bankruptcy filing.
   • There should not be any record of fraudulent activities on your part.
   • You should not have records of skipping tax payments.
   • You should have received a copy of your tax assessment at least 240 days before filing bankruptcy.
4. Removes community debts: If you're a divorcee, the court will discharge you from all dischargeable community debts. However, once you're discharged from the community debt, your ex-spouse becomes responsible for the entire balance owed on the account. So, the debt is simply transferred from you to your ex-spouse.

What restrictions does Chapter 7 impose on employers and creditors?

There are certain restrictions that Chapter 7 imposes on employers and creditors. These are:

1. Under 11 U.S.C. 525, an employer cannot fire a debtor who's filed a bankruptcy, unless the employer is the creditor.
2. Arrest for debt has been illegal in the US since the 1830s.

Filing bankruptcy is a serious decision and should be done with a lot of caution. You need to know the basics and get help from an attorney to guide you throughout the process.^Top

Latest Related Discussions

• Calls have started again from collectors By j92 on 30 Jan, 2012
  I have posted on here a few years ago. About two years ago I received tons of calls everyday from what I was told was scam debt collectors. They have very thick Indian accents. The calls have started again. I have approximately 30 calls on my an...
• address for bigsky cash, loanstarusa By kmaslinski on 30 Jan, 2012
  you all have been so much help i need the addresses for these 2 places....
• Mass Street Group By Confused in CA on 30 Jan, 2012
  Does anyone have an address for Mass Street Group, I've looked everywhere and can't find one???...
• can i file? By kmaslinski on 29 Jan, 2012
  can i file bankruptcy on payday loans? What about the triabal ones? do they have to abide by the rules?...
• Creditors contacting my mother By very_cold on 29 Jan, 2012
  My mother is being contacted for a significant student loan debt. They're asking to speak to me and using profane language. She says that I don't live there and gives no further information.
  What can be done to get the calls to stop? My mother ...