The debtor (person filing) must disclose on the bankruptcy petition, all assets and liabilities, along with income and expenses. Immediately upon the filing of a Chapter 7 and Chapter 13 bankruptcy case, all collection efforts and lawsuits are stopped automatically. (The bankruptcy “Stay”). No creditor may continue their collection cases against the debtor once the petition is filed. This means that upon the filing, no one can touch your bank account, automobile, boat or house as long as the “stay” remains in force. A creditor must file a Motion in the Bankruptcy Court to obtain relief from the stay.
Generally, someone would consider filing for Chapter 7 Bankruptcy protection if they are unable to pay their unsecured debt. Unsecured debt is any debt that is owed to a creditor, where the creditor does not maintain any filed interest in property. Secured debts are most commonly auto loans and mortgages on real estate. Unsecured debt includes, but are not limited to the following: credit cards, personal loans, doctors’ bills, hospital bills, etc… If you meet the requirements under the bankruptcy code, you may keep your property ( ie., auto and house) and discharge (eliminate) all unsecured debt.
One may also consider Chapter 7 protection for the purpose of surrendering (giving up) property, such as an auto or a house, due to an inability to make the finance or mortgage payments. Under this scenario, if the debtor meets the requirements, they may discharge (eliminate) the mortgage, auto financing and all unsecured debt.
If one meets the Chapter 7 requirements, as of the date of the filing, all unsecured debt will eventually be discharged, without ever having to make another payment to the unsecured creditors. Generally, a debtor completes the bankruptcy process and obtains an order of discharge in approximately four months after the filing.
A Chapter 7 does not require you to make any trustee payments as you would under Chapter 13. A Chapter 7 may even allow an individual to save a house from a foreclosure action or an auto from repossession.
The bankruptcy code specifies, which type of debt is dischargeable. Even though you meet all of the requirements of a Chapter 7 and obtain a discharge, the order of discharge usually does not discharge certain debts, some of which are as follows:
- Certain income taxes
- Child support,
- Student loans insured by the government,
- Debt incurred by fraud, and,
- Governmental fines.