Chapter 7 bankruptcy is a type of bankruptcy filing that is available to qualified debtors. Chapter 7, unlike Chapter 13, is a liquidation process which results in the complete (or almost complete) forgiveness of the debtor’s liabilities. Liquidation means that the court (through the bankruptcy Trustee) collects and catalogs all of your exempt property and sells it to satisfy your various debts. Since Chapter 7 results in a complete erasure of debts, it is strongly favored option for many people. This post will go over how Chapter 7 works and what properties are exempt from liquidation
In a Chapter 7 bankruptcy, the court will eventually forgive all of the debtor’s liabilities. The court sends out notices to all creditors who then must submit claims to the estate. Any creditor that fails to submit a claim (except those with secured liens) lose their opportunity to collect from the debtor.
While the claims are collecting, the Trustee examines the debtor’s assets. The Trustee is expected to generate a complete accounting of all non-exempt property. All non-exempt property is sold to satisfy the debts in order of their right to collection. Both federal and state law exempt property from liquidation. While it varies from state to state, generally primary residences, primary automobiles, personal and household items, and jewelry are exempted from liquidation.
For instance, creditors cannot seize your only home or means of transportation. Furthermore, creditors cannot seize jewelry, like family heirlooms and wedding bands. Finally, the court won’t take your clothes, furniture, and other items that you need to maintain a healthy home-life.
Filing for Chapter 7 presents many opportunities but also risks. As you can see, you can completely get out from under your debts. But, to do that, you may have to lose sell or sacrifice a substantial amount of your personal assets and belongings. A lawyer can help you get more of your property exempted from the proceedings to ensure that you are left with sufficient assets to rebuild your life.