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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 household goods;
•
Equity in a motor vehicle up to $2,400.
($4,800.00 For spouses filing jointly);
•
Equity in a house, condo, or co-op up to $50,000.00
($100,000.00 For spouses filing jointly);
•
Most pensions and retirement plans
As
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
bankruptcy.
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