It is a modern fact-of-life that some people accumulate so much debt, that they are simply unable to make their payments. There are a number of reasons for this, but many times it is because the debtor’s income has unexpectedly dropped significantly. The purpose of a bankruptcy is to provide a “fresh start” to debtors who qualify. There are typically two types of bankruptcy a consumer can pursue: Chapter 7 or Chapter 13. This article will provide a general overview of a Chapter 7 Bankruptcy.
A Chapter 7 Bankruptcy, also known as a “no-asset bankruptcy”, is by far the most common form of bankruptcy in the United States. It allows the debtor to discharge most (if not all) of their debts, while retaining all of their assets that are protected by “exemption.” Assets, which are not protected by “exemption” will be sold by an appointed bankruptcy trustee. The value of those sales is then given to the debtor’s various creditors, according to the priority of their status as creditors. Assuming the debtor qualifies for a Chapter 7 Bankruptcy, the debtor will receive a “discharge” of their debt.
In short, the process is begun by filing a bankruptcy petition with a bankruptcy court, which will require the debtor to disclose all details of their finances. It should be noted that failure to provide accurate information may result in the debtor becoming ineligible for a discharge, and even facing criminal charges. After the petition has been properly filed, the debtor will appear at what is known as the “First Meeting of Creditors.” Here, creditors and the trustee will have the opportunity to ask questions regarding the debtor’s assets and debts.
If there are non-exempt assets the bankruptcy trustee will sell those assets and distribute the proceeds to the creditors. After the sales have taken place, the trustee may review the debtor’s remaining assets to determine if they have sufficient assets to pay additional money to the creditors. Everything the debtor earns after they file for the Chapter 7 Bankruptcy typically cannot be touched by creditors included in the bankruptcy.
Typically, the process from filing to discharge takes about 4-6 months. The practical effect of a Chapter 7 Bankruptcy is to remove all personal liability for the debts discharged in the bankruptcy; this means debts incurred after the debtor filed for bankruptcy are still legally collectible.
After the debtor has received their discharge, there are still several legal issues that could arise. This includes creditors continuing to attempt to collect their debts post-discharge, which may be through letters, phone calls, or even credit reporting. If this happens, these creditors may be violating the bankruptcy court’s orders, as well as the Fair Credit Reporting Act. For more information, please contact C.O. LAW, APC today.