In a bankruptcy
petition filed under Chapter 7,
a debtor is seeking to obtain a discharge of outstanding debt.
The discharge is a court order which absolves the debtor from
having to pay debt classified by the bankruptcy law as
"dischargeable." The discharge serves as a permanent injunction
against otherwise potential collection action for debt incurred
prior to the bankruptcy.
In essence, a Chapter 7, bankruptcy discharge allows a debtor to proceed forward without
financial turmoil, thereby providing the debtor with an
opportunity for a fresh start.
Most debts are dischargeable, such as credit card balances, bank
loans, court judgments and medical bills. Debt categorized by
the bankruptcy law as "non-dischargeable" includes certain types
of tax debt, most student loans, government fines, restitution
for outstanding child and spousal support, and debts incurred
from criminal or fraudulent conduct.
A Chapter 7 bankruptcy
filing technically results in the liquidation of a debtor's
assets designated as "nonexempt" by the bankruptcy law. Upon the
filing of a Chapter 7
petition, a United States Bankruptcy Court Trustee is assigned
to evaluate and sell a debtor's nonexempt assets. The proceeds
of any such sale are used to pay off creditors. A
Chapter 7 bankruptcy debtor
is able to retain all property categorized as "exempt." Examples
of property classified as exempt by the bankruptcy law includes:
Cash, U.S. Savings bonds and tax refunds up to $2,500;
• Household furniture
• All wearing apparel
• Certain appliances and
• Equity in a motor vehicle up to
$2,400. ($4,800.00 For spouses
Equity in a house, condo, or co-op up to $50,000.00
spouses filing jointly)
Most pensions and retirement plans
a result of the recent changes to the bankruptcy laws it is
important to utilize the services of an attorney to carefully
evaluate an individuals income expenses. Individuals who earn
over certain income thresholds and have income in excess of
certain allowed expenses may not qualify for chapter 7
bankruptcy but maybe a strong candidate for chapter 13
uncertain economy, many small business owners are facing great
financial difficulty. Business owners may pursue relief from
their creditors under Chapter 11
Bankruptcy. Typically, Chapter 11
is the option mostly utilized by businesses.
A debtor in Chapter 11 may
continue to operate its business while the court proceedings are
pending. However, the Bankruptcy Court must approve a plan
designed to repay the debts.
of the U.S. Bankruptcy Code provides a debtor with an
opportunity to pay off its debts through a court approved
payment plan. The Chapter 13 procedure allows a debtor to repay
some or all of its debts over a period of three to five years.
Typically, the Chapter 13
debtor possesses the ability to repay some or all of their debt
but requires time to do so. The benefit received from filing a Chapter 13 bankruptcy
petition is that a debtor can keep all of his or her property
(typically their home and car), including those valuable assets,
which are not exempt. One of the additional benefits of chapter
13 bankruptcy is interest and late fees do not accrue in a
chapter 13 payment plan.
A common scenario in which a debtor will
utilize the Chapter 13 option is when the debtor is behind on
its mortgage payments. Chapter 13 bankruptcy will stop a
foreclosure proceeding and give the debtor the right to pay back
the past due payments over a period of up to sixty (60) months.
As part of the payment plan, a debtor is required to pay back a
percentage (or all) of the unsecured debt.
Upon the completion of the plan, the debtor
will receive a discharge of debts and will be able to keep their