What Happens When You File Chapter 7 Bankruptcy?

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    Automatic Stay

    • If you reach the point of filing for bankruptcy, you likely have creditors trying to collect on what you owe. An automatic stay means a creditor cannot try to get your car or other possessions or garnish your wages in an attempt to collect the money owed. The automatic stay goes into effect as soon as you file for Chapter 7. The stay stops a foreclosure short term, but your lender can continue with the foreclosure proceedings eventually if you don't get the loan in good standing.

    Assignment of Bankruptcy Trustee

    • A bankruptcy trustee takes control of your finances once you file for Chapter 7 bankruptcy. At this point, you are not allowed to get rid of any possessions, either by selling or giving them away. The trustee reviews the paperwork to find nonexempt possessions that can be sold. The money from the sale of the items goes to the creditors to cover part of the money they are owed. Each state sets the restrictions on the items that are exempt or nonexempt so checking with a local bankruptcy attorney helps you determine the category of your possessions. In general, exempt items include your home, cars, clothes, household items, pensions, professional tools, personal injury payments and public benefits. Some items like vehicles and jewelry are only exempt up to a certain value. Non-exempt items typically include value collections, antiques, cash, stocks, bonds, bank account balances, extra vehicles and second homes.

    Creditor Meeting

    • The creditor meeting takes place about a month after you file for Chapter 7. Your attendance is required at the meeting. You answer questions from the bankruptcy trustee while under oath. The questions relate to your debt and possessions. Creditors who are present can ask questions as well. The trustee uses this meeting to find other potential nonexempt items to sell.

    Property Liquidation

    • If you own items that are nonexempt, those items are turned over. Another option is to pay the equivalent value in cash, but most people filing Chapter 7 bankruptcy won't have the available cash on hand. The trustee also has the option to abandon nonexempt items if selling them isn't worth the money and effort. The money from items that are sold goes to your creditors.

    Discharge

    • The final step in a Chapter 7 bankruptcy is the discharge of your eligible debts. Discharge means the debts are canceled. Certain debts are not eligible for discharge, including child support, taxes, criminal fines, student loans or debts that the creditor successfully fought. This might include a debt you obtained fraudulently.

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