A Chapter 7 is a bankruptcy where a Chapter 7 Trustee claims and liquidates a Debtor’s non-exempt assets to pay debt. In exchange, the Debtor receives a discharge with some exceptions like student loans and domestic support obligations.
When a person files for bankruptcy they are required to list a bunch of financial information, including what they own (assets), what they owe (debt), income, and expenses. All of the assets are put into a “bin” that is called property of the estate. The goal is for a person to protect as many assets in their “bin” as possible using exemptions. When an exemption is claimed, the person effectively removes the asset from the “bin” and puts it on their “shelf”.
When it comes time to handover the “bin” to the Chapter 7 Trustee, the goal is for the “bin” to be empty or filled with assets of minimal or inconsequential value. If there is nothing in the “bin”, the Chapter 7 Trustee has nothing to claim an interest in and liquidate to pay debt. If there are only assets of minimal or inconsequential value, the Chapter 7 Trustee will most likely abandon those assets to your “shelf”. If there is anything of value, the Chapter 7 Trustee will claim that asset, remove it from your “bin”, and place it on his “shelf” to then sell/liquidate to pay your creditors. In an overwhelming number of Chapter 7 bankruptcies, the Trustee claims no assets. As such, the person filing for Chapter 7 bankruptcy retains all of his or her property.
The ultimate goal of the Chapter 7 bankruptcy is to obtain the discharge, which eliminates the filer’s legal obligation on his or her debts. The person fills a “box” with all of his or her debts, including but not limited to credit cards, medical bills, car loans, payday loans, mortgage loans, and loans owed to family and friends. Certain debts are pulled out of the “box” and put on the shelf, meaning those debts survive the bankruptcy and are non-dischargeable. The goal is to have as much of the debt stay in the “box” and be incinerated once the discharge is granted. Some debts that come out of the box are student loans and child support obligations to name a few.
Instead of worrying what will come next, meet with a bankruptcy attorney to discover your options tailored to your situation.