The primary purpose of a Chapter 7 bankruptcy filing is for the debtor to get a fresh start by discharging debts that they cannot afford to repay. When a Chapter 7 case is filed, the debtor lists all of their debts in the bankruptcy schedules that get filed with the court. The court clerk uses the addresses provided to mail notices to the creditors, which stops them from bothering the debtor during the case. The case takes about four months to complete.
If all goes well, when the case is complete, the debtor receives a discharge, which removes their obligation for the listed debts. The only debts that are not discharged are those that are reaffirmed (many debtors reaffirm car loans to avoid repossession), and those that are listed in the bankruptcy code as non-dischargeable debts. A few examples of non-dischargeable debts include alimony, child support, recent tax obligations, and student loans. There are other debts that may not be discharged as well, which is part of what the debtor will discuss with their attorney before filing. It is important to make sure that the debts you are trying to get rid of can be removed with a bankruptcy discharge.
A secured debt can be discharged, but the debtor often must surrender the security if the debt is discharged unless it is secured by real property (such as a house or condo). With real property, even though the debt is discharged, the debtor can retain the property if they continue to make payments and keep the loan current. With car loans, which are personal property, a debtor must reaffirm the debt (leaving them on the hook for the loan just as they were pre-bankruptcy) or run the risk of repossession even if they continue to keep the loan current.
When unsecured debts are discharged (medical bills, credit cards), they are no longer the debtor’s obligation, and the creditor cannot call, send letters, or attempt to collect in any way. That is the primary benefit of a Chapter 7 bankruptcy filing.
It is important to speak with an attorney before filing bankruptcy to make sure the discharge is maximized and removes the debt the debtor is trying to avoid.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.