The most common types of personal bankruptcy for individuals are Chapter 7 and Chapter 13. As much as 65% of all U.S. consumer bankruptcy filings are Chapter 7 cases. In Chapter 7, commonly referred to as a liquidation, a debtor can keep most household items and even a newer automobile using state or federal law. If the debtor can’t protect all of the equity in their possessions they have a choice, they can surrender their non-exempt property to a bankruptcy trustee who then liquidates the property and distributes the proceeds to the debtor’s unsecured creditors or make a deal to pay the non-exempt value of the item to the trustee over time for the benefit of the debtor’s unsecured creditors, usually not exceeding a year. In exchange, the debtor is entitled to a discharge of most of their debt. Many individuals in financial distress own only exempt property (e.g. clothes, household goods, an older car) and will not have to surrender any property to the trustee. The amount of property that a debtor may exempt varies from state to state. Chapter 7 relief is available only once in any eight year period. Generally, the rights of secured creditors to their collateral continues even though their debt is discharged.
In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. If the debtor intends to retain the secured items the debtor must continue payments and remain current on that obligation. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7.
Common exceptions to discharge include child support, income taxes less than 3 years old, property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.
Benefits of Filing for Bankruptcy
Filing for bankruptcy is a serious and important decision that has significant ramifications. The bankruptcy lawyers of Lyndon Ruhnke, P.C., can help you decide whether filing for bankruptcy is right for you. We can advise you on whether you qualify for a Chapter 7 liquidation, or would be better served by entering into a Chapter 13 repayment plan.
Among the many benefits of filing for bankruptcy are:
- Stop garnishments on bank accounts and wages
- Stop home foreclosures
- Stop harassing phone calls from bill collectors and collection agencies
- Prevent utilities from being shut off
- Stop car and truck repossessions
- Eliminate some back taxes
Member of the National Association of Consumer Bankruptcy Attorneys (NACBA).