How Does a Chapter 7 Bankruptcy Work?

Think of a Chapter 7 bankruptcy as a fresh start. In this type of filing, all of your debt is listed on the schedules of your bankruptcy petition. There is a schedule for secured debts, like your house and car, as well as a schedule for your unsecured debts, like medical bills and credit cards. These unsecured debts, if the case is successful, are all discharged in the Chapter 7 bankruptcy, which is what makes this type of filing a fresh start.

Secured property can also become an unsecured debt, and thus be discharged in the Chapter 7 bankruptcy, if it has been repossessed or foreclosed upon and all that is remains is a deficiency balance, or if the client decides they would like to surrender their interest in the secured property ahead of time.

Since a Chapter 7 bankruptcy is a liquidation of your assets, there is also a schedule for listing all of your assets. This includes anything from bank accounts, to life insurance policies, to cars and any other significant assets. Most of the time, these assets can be exempt and thus there will never be any issues with the case. However, it is still vital to your case to consult with your attorney to ensure that your assets are properly shielded from the liquidation that occurs in every Chapter 7 case.

Finally, an individual can only receive a discharge in a Chapter 7 case every eight years. If you are in need of bankruptcy protection and you are ineligible for a Chapter 7 due to this rule, there are other options for you such as a Chapter 13 bankruptcy. In this case, consult your attorney to decide the best course of action that your situation requires.

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