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There are five main types of bankruptcy cases set forth in the United States Bankruptcy Code. Here we discuss Chapter 7 Bankruptcy Laws; one of the 2 types of bankruptcy most frequently used by individuals.

Here's a link for Chapter 13 Bankruptcy Information.

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Chapter 7 Bankruptcy Laws

Chapter 7 Bankruptcy Laws are referred to as "liquidation" or "fresh start" bankruptcies.

They focus around a bankruptcy court-supervised procedure by which a trustee (an individual appointed by the United States Department of Justice to oversee specific bankruptcy cases) collects the assets from the person filing the case (this person is known as a debtor).

The "trustee" then sells the assets and pays the debtor's creditors with the sale proceeds (a creditor is the person or entity to whom money is owed by the debtor).

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

Chapter 7 bankruptcy laws were created for best use 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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1. Release and Settlement Agreement
2. Credit Collection Cease Communication Letter
3. Expired Statute of Limitations Notice Letter
4. Credit Inquiry Information and Removal Letters
5. Letter to a Credit Report Agency That Co-Mingled Information
6. Letter to Credit Reporting Agency - Dispute Letters
7. Debt Collection Dispute Letter Packet
8. Good Will Adjustment to Remove Late Payment
9. Notice of Harassment to Debt Collector/Agency/Attorney/Firm
10. Negotiating a Settlement With Utility, Cable, or Satellite Companies
11. Letter to Settle Past Due Account
12. Negotiating Settlements with Creditors for Separation and Divorce Issues
Plus: Letter to Update Accounts or Debts That Were Discharged in a Bankruptcy

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:

  • Repaying money to relatives
    If you repay a relative anytime during the year prior to filing bankruptcy, the trustee can sue the relative to receive the money back to distribute to all of your creditors equally.

  • Not listing all creditors
    Make sure to list every single person or company you owe money to. Only if this list is completely accurate and complete will those debts be discharged at bankruptcy.

  • Transferring Assets
    Shifting assets to your children's name or a relative just prior to filing for bankruptcy is not permitted.

  • Concealing Assets
    Bankruptcy laws require full disclosure of all assets. The FBI fraud division, IRS auditors, and the Executive Office of the U.S. Trustee investigate bankruptcy filings. They will eventually find your assets even if you do not have them listed in your paperwork. It is a federal crime, a felony, to commit bankruptcy fraud. Do not take chances.

  • Credit Consolidation
    Be careful about credit consolidation companies. The airwaves are inundated with consolidation companies urging their solutions as a way to "avoid bankruptcy." However, even if you negotiate lower payments or a restructure your debt outside of bankruptcy, your credit score is still adversely affected just as with bankruptcy.

    You also should be aware that there could be income tax liability. In addition, don't be fooled, "not-for-profit" doesn't mean "free." These organizations are typically capitalized by banks and the credit card industry because they want to try to collect as much money from you as possible.

    Do You Have A Story or Question About
    Dealing With Bankruptcy?

    If you've got story to tell or an experience you've faced, please take a minute to share it. I'm sure that there's someone it could help in some way.

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