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Chapter 7

Under the Bankruptcy Reform Act of 2005, the filing of a chapter 7 bankruptcy
(liquidation) eliminates most unsecured debt such as, credit cards, medical bills,  business loans, personal loans, claims for damages, and secured debts where  the collateral is surrendered to the creditor. In some instances, state and federal  taxes are eliminated provided that the criteria for tax discharge are met. This is the most common type of bankruptcy filed by debtors.

Once a chapter 7 bankruptcy is filed, a Trustee is assigned to the case. The  Trustee is endowed with many duties, including the duty to administer non-exempt assets for the benefit of your creditors. Translated into laymen’s terms, State and Federal laws allow you to protect assets up to a specific dollar amount. If the value of your asset exceeds the amount protected under the laws, the Trustee may sell that asset and distribute the excess proceeds to the creditors.

Even though the Trustee has this power, in practice, the vast majority of debtors are able to eliminate their debt without losing any personal assets. Most people’s personal assets are simply not worth enough to compel the bankruptcy trustee to administer them for the benefit of creditors. There are debtors, however, who own valuable homes, vehicles, heirlooms, etc. For such debtors, it is crucial to seek the advice of a qualified attorney to determine whether their valued possessions are exempt from the bankruptcy estate or risk losing them to the Trustee.

After the chapter 7 bankruptcy is filed and the initial hearing is conducted, the debtor will receive a Discharge in approximately two to three months. A discharge is a permanent Court Order that enjoins creditors from ever collecting
their money. The Discharge gives the debtor a “fresh start” and allows him / her to begin rebuilding credit immediately.

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