BANKRUPTCY CHAPTER 7

There are five main types of bankruptcy cases set forth in the United States Bankruptcy Code. The two types most commonly used by individuals to file personal bankruptcy are Chapter 7 and Chapter 13.

On this page, we will discuss bankruptcy chapter 7.

_{For a discussion on bankruptcy chapter 13, click here.}

Bankruptcy Chapter 7

In a Chapter 7 case the debtor has a right to keep certain property - this is determined by state or federal laws and is referred to as exemptions or exempt property. A creditor whose debt is secured by property (i.e. there is a lien or a mortgage on that property) has a right to repossess or foreclose on that property if the debtor does not continue making payments on that debt - even if bankruptcy has been filed.

In those cases where the property is exempt or has no equity, and where the debtor is current or relatively current on the amounts owed on the debt secured by the property, the debtor can keep that property by agreeing with the creditor to pay what the creditor is owed on the debt.

In most Chapter 7 cases, the debtor has little or no property that is not exempt or that has any equity or value. The trustee will only sell non-exempt property that has equity (i.e. is worth more that what is owed on the property) since it is one of the trustee's goal is to obtain money to pay the debtor's creditors.

If the debtor owes more on an item of property than what it is worth, there will be no proceeds generated by the sale of that property by the trustee (since the secured creditor must be paid from the sale proceeds first - and, as such, the trustee does not even bother to attempt to sell property with no equity).

Therefore, in most Bankruptcy Chapter 7 cases, there will not be an actual sale of the debtor's property - these are referred to "no-asset cases."

Chapter 7 bankruptcy is usually selected by the debtor when the debtor owns no real property or has no equity in the real property that is owned (and is current on all payments to any secured creditors holding mortgage or liens on the property), when his or her personal property is either exempt, has no equity or is of little value, and when the debtor has significant unsecured debts (most credit card debt, medical bills, personal loans, etc.) that are intended to be discharged.

Since the debtor can, in those situations, eliminate unsecured debt and retain his or her real and personal property, this type of bankruptcy is attractive to qualified persons.

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FEATURED ARTICLE
Common Mistakes Before Bankruptcy

There are many common mistakes that are often made before and during the bankruptcy process. Here is a short list of them: