Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is a liquidation or straight bankruptcy. This is the most common form of bankruptcy filed by individuals. This is usually the best option for individuals with a small estate and/or debt.

In a Chapter 7 bankruptcy, the Bankruptcy Court appoints a trustee who will administer the debtor’s case. Chapter 7 may require the Debtor to turn over certain property that is consider non-exempt under the Bankruptcy laws. This property is sold by the Trustee to pay the debtor’s creditors.

The point of a Chapter 7 bankruptcy is that in return for giving up non-exempt property the Court will discharge or eliminate your debts. In a Chapter 7 your assets will be divided into two categories, exempt and non-exempt.

Exempt assets are often best described as the necessities of life. These types of assets often include the equity in your home, the equity in a vehicle, your household furnishings, and a 401k retirement account.

Non-exempt assets are the luxuries in your life that a Trustee could seize and sell to pay off your creditors. These assets often include timeshares, boats, airplanes, quads, and tax refunds. In most cases, all of your property is likely to be exempt. However, in those instances where it is not, the Trustee will seize those assets and use them to pay your creditors.

If you are behind on your mortgage or car loan and wish to keep those assets then a Chapter 7 is most likely not the best bankruptcy tool for you. A Chapter 7 does not eliminate the right of the secured creditor to take the collateral to cover your Debt. Therefore, if you wish to keep these items then you will have to get current on these debts.