Chapter 7 provides for the elimination of most debt that is not secured by an
asset, like a house or a car. Credit card debt is usually all wiped out in a
Chapter 7 filing. On the other hand, student loans, alimony, child support, and
recent federal or state taxes are usually not discharged in bankruptcy.
For secured loans, a debtor usually will be discharged from any obligation to
pay the loan. However,
the lien on the asset securing the loan is not discharged, except in some Chapter 13
cases. This means that the lender can still seize the asset for payment of
the debt, even though the lender can no longer pursue the debtor for
In an individual bankruptcy case, four different parties or entities interact
to resolve the debt issues of the individual filing the case. These are:
Debtor: This is the person who is filing for bankruptcy
relief. It may also include the spouse of the
debtor. The debtor's attorney represents the
debtor and is not considered
Creditor: This is anyone to whom the debtor may owe
any money. It includes banks and credit card
companies, but also includes friends,
service providers, and
people who may have
a personal injury claim
against the debtor,
whether or not they have
already filed a lawsuit.
Trustee: This is the individual appointed by the
Justice to represent the
unsecured creditors of the
debtor. One of the
most important tasks of the trustee
is to sell
off any non-exempt assets of the debtor
pay that money over to the creditors. See
the Exemptions page for
what assets may be exempted
(protected) from trustee liquidation.
Court: The court hears and decides disputes
between the debtor, trustee, or creditors.
Most Chapter 7 cases do not involve
significant interaction between
and the court.
A Chapter 7 bankruptcy case begins with the filing of the petition. The petition
includes details of all of the debtor's assets, liabilities (money owed),
income, and expenses. The petition also serves as a court order which requires
the cessation of all collection activities against the debtor, including phone
calls, foreclosure, repossession, and even the mailing of statements.
About 30 days after the filing, a "meeting of the creditors" takes
place, where the debtor and their attorney meet with the trustee at
the federal courthouse. See the Meeting of the Creditors page for more information about what happens at this meeting.
After the meeting of the creditors, there is a 60-day period where anyone to
whom the debtor owes money can object to some aspect of the bankruptcy
case. While these objections are relatively rare, some of the more common
objections are that there is a legal basis on which a particular debt should
not be discharged (such as for fraud), or that a particular asset (like a house
or car) is actually worth more than the debtor has claimed, and thus might
provide a source of funds with which to pay some of the debts owed.
About two weeks after the 60-day period is over, the court usually grants the
debtor a discharge of all the debts that are dischargeable under the law and
that have not been successfully challenged. The case is then closed and the debtor
is given permanent protection from all debts that have been discharged.
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