Chapter 7 Bankruptcy

A Chapter 7 bankruptcy is designed to wipe out most debts, providing  a “fresh start.”  The legal forgiveness of debt is known as a “discharge.”

While bankruptcy does a great job in wiping out debt, any cash, personal belongings are real estate a person has may be taken by the trustee appointed to administer the case.  In many cases, though, this is only theoretical.  The bankruptcy laws do provide a person with the ability to protect many of his or her assets through exemptions, and many people emerge from bankruptcy with most of their debt eliminated, while keeping their homes, their cars and the contents of their homes.

A Chapter 7 bankruptcy begins when the debtor files a petition with the bankruptcy court. That petition and the accompanying schedules will show assets, liabilities, income, and other financial information. Once the petition is filed, most collection actions against the debtor are stopped. During this time, creditors cannot call demanding payment, proceed with lawsuits, or garnish wages. Creditors are notified of the bankruptcy case by the court’s clerk.

Once the petition is filed, things move pretty quickly.   Often within thirty (30) days after filing, the trustee will preside over a hearing called a “meeting of creditors,” which for many people in northern New Jersey, would take place in Newark. The debtor attends this hearing with his or her attorney and must testify about his or her finances and property.

If the trustee believes the case is being filed fraudulently, he or she will report that to the court. At the meeting, the debtor will be informed of the consequences of filing for bankruptcy, like the effect on credit history, the other types of bankruptcy available, the effect of a bankruptcy discharge, and the effects of reaffirming a debt. In most cases, a discharge will be granted.

Once a discharge occurs, it releases debtors from liability for most debts. However, there are many exceptions, and a debtor should be aware of those exceptions. Some common examples of debts not discharged are debts for alimony and child support, taxes, student loans, debts for willful injury by the debtor to another person, and debts for injuries caused by the debtor’s drunk driving.  Mortgage companies and secured creditors such as car loan compnaies also may have the right to seize property after a discharge is granted.