The most common type of personal bankruptcy is Chapter 7 Bankruptcy. This bankruptcy results in the discharge of a debtor’s unsecured debts, including credit card debt, medical bills, and other unsecured loans. This means the debtor will not owe this money anymore.
A debtor has an option with regard to secured loans such as home mortgages or car loans. The debtor may reaffirm the loan and keep making payments as if bankruptcy never happened and keep the property, or the debtor may surrender the property and walk away from any further liability on the loan. Most people reaffirm their home mortgages and vehicle loans.
In exchange for the bankruptcy discharge, a debtor is required to turn over all non-exempt property to a Chapter 7 bankruptcy trustee who liquidates the property to pay creditors. A debtor is entitled to keep exempt property which consists of a homestead, one motor vehicle, household goods, retirement plans, and other property. The vast majority of debtors get to keep all of their property as exempt property.
In order to start the bankruptcy case, an attorney needs to complete the bankruptcy petition and file it with the court. The bankruptcy petition will include all of the assets and liabilities of the debtor. It will also include the names and addresses of all creditors, whether or not the debts are being discharged. The petition will also set forth the income and monthly expenses of the debtor, and other financial information.
At the time the bankruptcy petition is filed with the court, an automatic stay goes into place which prohibits creditors from taking any action against the debtor to collect debts. This includes collection calls.
A meeting is scheduled with the bankruptcy trustee about 45 days after filing the petition. The meeting takes about 15 minutes, and consists of the bankruptcy trustee asking questions about the debtor’s assets, liabilities, and other financial information.
After the meeting with the trustee, there is about a 45-day period for creditors to file objections to the bankruptcy case. This rarely happens. If no objections are filed, the court will grant a discharge. The debtor can only file bankruptcy once every eight years.