Chapter 7 Bankruptcy

What is Chapter 7?

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Chapter 7 is the “Liquidation” Chapter and what most people think of as a bankruptcy. A trustee is appointed to examine the assets of the debtor and turn some or all into cash to pay creditors. (see section on role of trustees or “who are the trustees?”) (see also ‘property of the bankruptcy estate’)

The purpose for an individual’s bankruptcy, (whether Chapter 7 or another chapter see overview of chapters) is to protect the individual during the case and in the future: affording the honest debtor a “Fresh Start”.   To facilitate the Fresh Start individual debtors are allowed to keep a significant amount of their property. [see section on What is Exempt Property?]

The Key Orders that protect; The Automatic Stay and the Discharge Order.

The Automatic Stay forbids virtually any creditor from taking action to collect on a debt. (criminal cases and domestic custody and support cases are not stopped). It is a temporary restraining order, but unlike a typical order the Automatic Stay is effective the instant the case is filed without notice to anyone. Freezing collection actions is a critical element of all bankruptcy cases and violation of the stay can result in serious sanctions against the violator. [see more on the Automatic Stay]. Because the Automatic Stay covers virtually all collection of debts, it a creditor from taking actions on liens. This includes foreclosure and repossessions. [See the limited life of the Automatic Stay]

The Discharge Order is a rather simple order, but the goal for most personal bankrupt cases. Like the Automatic Stay it forbids the collection of most debts and obligations incurred up to the date the case was filed. [See Exceptions to Discharge]. The Discharge Order is different in that A. it is permanent, i.e. a discharged debt may never be collected and B. it covers only pre-bankruptcy debts and not liens.