Many people are hesitant to file Chapter 7 bankruptcy due to some misconceptions about what it actually entails. Although Chapter 7 is also known as a liquidation bankruptcy, many categories of property are exempted from the liquidation, allowing debtors to keep certain items of property. Debtors should still expect that they will lose non-exempted property they may own, however.
The Chapter 7 proceeding is initiated by filing a petition together with a statement of financial affairs and several schedules detailing income, expenses, debts, assets and all leases and executory contracts. Additionally, the debtor will either be required to pay the filing fee or to set up an installment plan of four payments to take care of it. Some income-qualified debtors may be able to have the fees waived. When the petition is filed, a bankruptcy trustee will be appointed to administer the bankruptcy estate.
One of the first tasks the trustee will have is to notify all of the creditors. The trustee will then schedule a creditors' meeting, at which the creditors will have the opportunity to object to the bankruptcy and question the debtor while under oath. If the bankruptcy is approved, the trustee then will liquidate the non-exempt assets, and the remaining unsecured debts will be discharged. When a debt is discharged, the creditor may take no further collection to collect on it. Secured creditors with liens on property are still able to enforce those liens, however.
Many people are concerned about the stigma attached to bankruptcy. For several, however, bankruptcy provides a good option in order to obtain relief from unmanageable debts. Bankruptcy can provide people with a fresh start, allowing them to move forward and make better financial decisions in the future. Those who are considering bankruptcy but who have questions may want to consult with a bankruptcy attorney.
Source: United States Court , "Liquidation Under the Bankruptcy Code", November 24, 2014