HOW DOES CHAPTER 7 WORK?

When a person files a Chapter 7 bankruptcy, they commence a liquidation, also known as a “straight bankruptcy.” The purpose of Chapter 7 is to give the debtor a fresh start and the legal term for this is a “discharge of debts.”

A chapter 7 case will take several months to complete assuming that there are no complications in your case. You can expect to receive your “discharge” within several months of filing your Chapter 7 and your case will be done!

In your Chapter 7 case you must list all of your debts and you must also decide which property you want to keep if the property is affected by a mortgage (real estate) or other liens (personal property where some form of lien has attached—such as an installment sales agreement or a car loan). For the property you wish to keep, it will be necessary for you to continue making payments on the mortgage or other debt even though you have filed bankruptcy.

Some of your property in Chapter 7 will be protected by allowed “exemptions” and you will get to keep it. Many people end up keeping all of their property because of exemptions.

These are examples of the issues that should be discussed with your lawyer before you file bankruptcy. When your Chapter 7 case is completed, your discharge eliminates most all debt and obligations. But there may be some debts that survive and this will depend on your circumstances. For example, certain student loans are not discharged and this is also true for many income tax debts (unless they are older and unless certain limitations apply). In addition, debts that come from domestic support may not be discharged. There are often complex rules that apply to these situations.

 

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