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From Executive Director
If you want to know what Chapter 7 bankruptcy is and how it can help you with your financial difficulties and problems, then this page is for you.
Title 11 of the US Code is labeled Bankruptcy and Chapter 7 of Title 11 is labeled “Liquidation”. So, when someone files bankruptcy under the laws, rules, and regulations of Chapter 7 we call it a Chapter 7 bankruptcy.
Chapter 7 is labeled “Liquidation” because it is the type of bankruptcy where the Chapter 7 bankruptcy trustee will sell your property that he, the trustee, is allowed to sell (he is not allowed to sell everything) and then and distribute the net sale proceeds to your creditors.
Note: A Chapter 7 bankruptcy is generally not as bad as it sounds because the trustee is not allowed to sell all of your property. There are 2 reasons: (1) you are allowed by law to exempt certain property from the bankruptcy, and (2) you must have some equity in your non-exempt property or else the trustee cannot sell the property and get money to distribute to your creditors. Property that is exempt cannot be sold or touched by the trustee. Property that has little to no value or has little equity will not be sold by the trustee because, after deducting the cost of the sale, there will not be any money to distribute to your creditors. The only reason to sell property is to obtain money to pay to your creditors.
The way a bankruptcy Chapter 7 works is that when you file bankruptcy, even though you keep possession of your property and continue to use it, you technically turn all of your property over to the Chapter 7 bankruptcy trustee. The bankruptcy trustee will review what property you have, what are your debts, and your financial data. There will be what is known as a 341 Meeting when you meet with the bankruptcy trustee and creditors and they may ask questions.
If the Chapter 7 bankruptcy trustee finds that all of your property is exempt or that there is not enough value in your non-exempt property to sell and obtain money to distribute to your creditors, then the trustee will declare your case to be a “no asset” case and the bankruptcy is essentially ended.
If the Chapter 7 bankruptcy trustee finds that you have property that is not exempted from bankruptcy and that the property has value, the trustee will sell the non-exempt property.
Remember, the non-exempt property has to bring in enough money from a sell to pay for the cost of the sale, pay any liens or mortgages against the property, and have enough money left over to pay to your creditors. After the property is sold, the trustee will distribute the net proceeds from the sale(s) to your creditors and the bankruptcy will be ended.
If everything is done properly, when the bankruptcy Chapter 7 is ended, your unsecured debts will be discharged - meaning that you will not have to pay them. You will still have to pay your secured debts such as your house payment or car payment in order to keep the property that secures the debt. If you do not pay your secured debts, then your secured creditors can seek to recover the property that was put up as collateral to secure the debt’s payment.
As you can see, one way Chapter 7 bankruptcy can help you is to get rid of unsecured debts such as credit card or medical bills and to make it easier for you to pay your secured debts such as home or car payments. It is much easier to pay living expenses when you do not have to pay unsecured creditors.
Another way Chapter 7 bankruptcy can help you is that, when you file bankruptcy, there is a legal automatic stay that stops most civil efforts to collect money from you. This means that most bill collectors must stop all collection actions including calling or writing you trying to collect. If you are being sued, most law suits are put on hold. Your creditors may ask the bankruptcy court to lift the stay, and the court may or may not lift the stay, but most of your creditors cannot proceed with collection until the stay is lifted. Some civil cases such as family support actions and certain other civil cases and criminal actions against you are not affected by the automatic stay.
This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.
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