As soon as the case is filed, it is illegal for most debt collectors to call a person, garnish wages, file a lawsuit, or seize property from the person who files Chapter 7.
At the end of the case, the individual receives a “discharge” which is an Order from the Court forbidding any collection efforts for debts included in the bankruptcy. It also prevents a mortgage lender from suing for money that is owed after a foreclosure takes place.
The case usually takes about 3 ½ months from the time it is filed until the discharge is issued. In most cases, the person who files the case gets to keep all of his or her property and most people never set foot inside of a Court room.
Property that can be kept in a Chapter 7 Bankruptcy
Many people believe that if they declare a Chapter 7 Bankruptcy, they will lose all of their property. This is not a correct assumption. All states have exemption statutes or have incorporated federal exemption laws which allow Debtors to retain some property.
When a Chapter 7 Bankruptcy is filed, the Debtor must list all of his or her personal belongings and other property. The Debtor must determine the value of each item. In most states, the law allows the Debtor to keep, or “exempt”, a certain cash value of property.
When an exemption is used, the Debtor can retain whatever portion of the value of the property that has been exempted. For example, if a Debtor owns a vehicle worth $8000 and wants to keep the vehicle, the full $8000 value can be exempted (if allowed by the applicable law), and the Debtor can retain the vehicle.
The $8000 that was exempted would count toward the total amount of exemptions that are allowed by the law that is applicable to the Debtor’s case.
Laws on what can be exempted vary from state to state. In some states, a primary residence can be exempted as a matter of law, with certain requirements including requirements related to the length of residency in the state.
In other states, funds in retirement, pension, IRA, or 401k can be exempted without counting toward the total value of a Debtor’s general exemptions. It is important to have a good concept of what you can retain if you do file a Chapter 7 Bankruptcy.
Failing to exempt your property correctly could result in the loss of belongings that may have been retained if the case were filed properly. A good attorney can tell you more about the property that you could retain if you file for bankruptcy.