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 payment.
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 a separate party.
Creditor: This is anyone to whom the debtor may owe any money. It includes banks and credit card companies, but also includes friends,
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 Department of 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 and pay that money over to the creditors. See the Exemptions page for more information about 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 the debtor 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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