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The Benefits Offered Under Chapter 7 of the Bankruptcy Law

Divorce, loss of job, reduction in income, a natural calamity, an unexpected health problem that necessitates continuous costly medical treatment, and so forth, are just few of the possible reasons why people suddenly become incapable of paying their mortgage, car loan and other debts. But the more payments missed the higher the amount of their debts become, until these reach an amount that is already quite impossible to still settle. It is normal for anyone with a huge debt to go through a nerve-racking experience; add to this the hounding and harassment of creditors and/or debt-collectors to force a debtor to pay what he/she owes. In 2010, an estimated 1.53 million Americans, who owed creditors huge amounts, but were no longer able to pay, filed bankruptcy in various U.S. federal bankruptcy courts. Bankruptcy is a legal procedure which allows a debtor to declare inability to make further payments to settle his/her debts. It has been allowed under the law to save people from overwhelming debts to give them a fresh start in their financial lives. There are many chapters in the Bankruptcy law, each designed to address the specific and unique financial situation a person is in. One specific chapter is Chapter 7 Bankruptcy, also known as Liquidation Bankruptcy. Taking from its name, Chapter 7 requires a debtor to surrender to a court-appointed trustee his/her “non-exempt” assets and properties for liquidation. One task of the trustee is to sell these properties in order to raise the amount needed in paying off aborrower’s creditors. Payment will only be on debts that are non-dischargeable; these include, but are not limited to:

  • Unlisted debts and creditors;
  • Most student loans, unless paying these would cause “undue hardship” to the borrower and/or his or her dependents;
  • Federal, state, and local taxes which are no more than three years old from the time these first became due;
  • Court fees;
  • Government-imposed penalties, fines, and restitution;
  • Child support and alimony or spousal support; and,
  • Debts resulting from wrongful death or personal injury damages if these are consequences of DUI.

Dischargeable debts, on the other hand, include personal loans, credit card loans, medical bills, past utility bills, etc.; the debtor is freed from these debts by the court. For non-exempt assets and properties, these include:

  • Motor vehicles, jewelry and tools used by the debtor in his or her trade or profession – but only up to a certain value;
  • Reasonably necessary household furnishings and goods, and clothing;
  • Household appliances;
  • Pensions, unemployment compensation, social security benefits and a certain percentage of the borrower’s still unpaid but earned wages; and,
  • Compensation for personal injury.

Chapter 7 bankruptcy is the quickest way for a debtor to gain relief from his/her debts and begin the process of rebuilding his/her credit. Chapter 7 bankruptcy offers the near-total liquidation of all debts that an individual may hold, giving those who pursue this option the ability to start their financial life anew. However, not everyone may qualify for this chapter due to the conditions set in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act. To understand more about this Chapter, as well as find out if this is the right bankruptcy chapter to file, consulting with a highly-competent bankruptcy lawyer may be a good decision.

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