Chapter 7 - Getting a Fresh Start


If you are unable to pay your existing debts, then a Chapter 7 may be the answer for you. In a Chapter 7 bankruptcy a person wipes out all of their debt and they get a "Fresh Start." This is accomplished by liquidation. In other words, the court-appointed Chapter 7 Trustee collects all of your assets and sells those which are non-exempt under the Bankruptcy Code. The net proceeds of the liquidation are then distributed to your creditors, and the Trustee takes a commission taken for overseeing the distribution.

A debtor does have certain exemptions under the bankruptcy code. If the debtor has enough exemptions, then the trustee will not liquidate or sell the debtors assets. If the debtor has assets that exceed their exemptions, then the Trustee calls this an asset case, and he will make arrangements to sell the debtors assets to collect monies.

The common assets that the Trustee looks for are homes with a significant amount of equity, personal injury awards, tax refunds, and inheritances.

The one exception to the Chapter 7 liquidation is the "Reaffirmation Agreement." This gives you the flexibility to retain certain secured debts that you select, such as your house or car, by curing arrearages and signing a voluntary Reaffirmation Agreement. Once you have done so, however, you are precluded from wiping out, or discharging, that debt for another six (6) years. Execution of the Reaffirmation Agreement will document that you will still owe that debt and you are obligated to pay it just as you were obligated before you filed bankruptcy. Reaffirmation agreements can only be set aside during the first sixty (60) days after the Reaffirmation Agreement is filed with the Court, or upon the Court's issuance of an Order of Discharge. Although the primary purpose of the Chapter 7 bankruptcy is to wipe out all of your debt, certain debts are non-dischargeable and they can not be wiped out. These debts include back child support, alimony obligations and other debts incurred by family support obligations, debts for personal injury or death caused by driving while intoxicated, student loans, fines and penalties for violating the law including traffic tickets and criminal restitution, income tax debts incurred within the last three (3) years and all other tax debts, and debts you forget to list in your bankruptcy papers.

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