Chapter 7, or “fresh start” bankruptcy, is the most widely known form of bankruptcy. It is designed to eliminate unmanageable unsecured debt and to give you a fresh start. However, some debts cannot be eliminated, such as child support and alimony; criminal fines; debts arising from drunk driving or fraud; some tax debts, and student loans.
As soon as a Chapter 7 is filed, the court issues a Stay requiring all creditors to stop contacting you. A trustee is appointed to review your financial affairs and sell any unprotected (“nonexempt”) assets, but you normally get to keep everything you own — such as your home, car, household goods, and pensions. If the trustee finds no assets to sell (which is true about 95% of the time ), it is reported as a “no asset case” and the case is closed. If it is an “assets case,” the trustee takes your non-exempt assets and sells them to pay your unsecured creditors. In either event, the court then issues you a discharge. The creditors whose debts have been discharged, or canceled, are forever prohibited from taking any action to collect the debt. In other words, you don’t ever have to pay those debts discharged by the court in a Chapter 7 bankruptcy. However, all secured property you choose to keep must remain current on payments.
There are other types of bankruptcies, some for specific circumstances. It’s important to note the trustee’s job is not to give you legal advice and you should contact our office with any questions.