Although filing for bankruptcy has severe consequences, many individuals choose to opt for it in order to qualify for protection from creditors. The United States Bankruptcy Code provides two alternatives for individuals wishing to file for bankruptcy protection. Chapter 7 bankruptcy involves liquidation of a person's assets, while chapter 13 bankruptcy sets up a payment plan and reorganizes debt. After a person's assets are liquidated in chapter 7 bankruptcy, the proceeds go towards paying creditors and the remaining balance is discharged by the courts, allowing a person to have a clean financial start, free from most debt obligations.
Court approved discharges provide instant relief for debtors from creditors and prevent them from taking any actions to collect the debt. Chapter 7 discharges can be complicated, so it is important to consult an experience attorney in order to make sure that everything is in order. Several kinds of debt are not allowed to be discharged by law. An attorney or court trustee will have a list of debts that cannot be discharged. Exemptions vary from state to state. Major exemptions that cannot be discharged except in the rarest of circumstances are federal taxes, student loans, spousal support, and child support.
The court may opt to disallow chapter 7 discharge at its discretion. This is usually due to some fault of the debtor. One reason for a denial of discharge is that the debtor did not keep accurate records. Also, courts may deny a chapter 7 discharge if a debtor is committing fraud. Finally, before being allowed to file for chapter 7 bankruptcy, debtors must complete a class in responsible financial spending. Failure to complete this class can result in denial of discharge.
Even though chapter 7 bankruptcy involves liquidation of personal assets, the bankruptcy code allows certain exemptions that are necessary for daily life within a reasonable amount. These include a vehicle for transportation, clothes, money owed from lawsuits, pensions, and certain kinds of jewelry like wedding rings.
After an individual files a petition for chapter 7 bankruptcy, he will have a hearing before a bankruptcy trustee. Trustees are agents of the court that are appointed to oversee bankruptcy cases. They are responsible for analyzing the finances of the debtor and for deciding what assets get sold in order to pay debt. They also distribute any funds to creditors. At the hearing, the trustee will go over the rules and conditions of chapter 7 bankruptcy. Following the meeting with the trustee, a person is required to go to another financial decisions class. Upon completion, a discharge will be awarded, releasing the person from debt.
A chapter 7 discharge can be revoked at the discretion of the trustee. Most of the time this happens if the bankruptcy was obtained by fraud or if not all assets were listed at the time of discharge. Failure to complete the required finance classes can also result in the discharge being revoked.
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If you live in Alabama, Florida, Missouri, New York or Wyoming, please click here for additional information.
By an Act of Congress and the President of the United States, we are a federal Debt Relief Agency. Attorneys and/or law firms promoted through this Web site are also federally designated Debt Relief Agencies. They help people file for relief under the U.S. Bankruptcy Code. Disclosures Required Under the U.S. Bankruptcy Code.