What is Chapter 7 Bankruptcy?
Bankruptcy is a legal process that allows individuals and businesses to eliminate or reduce their debts. Chapter 7 bankruptcy is one of the most common types of bankruptcy and is often considered the easiest type of bankruptcy to file. It involves liquidating non-exempt assets to pay off creditors, while exemptions protect specific items from being sold to pay off creditors.
How Does Chapter 7 Bankruptcy Work?
The bankruptcy process typically begins with the debtor filing a petition for bankruptcy with the court. This petition must include detailed information about the debtor's assets, liabilities, and income. The trustee will then review the petition and make an inventory of all non-exempt assets. These assets are then sold to pay off creditors.
Exemptions allow debtors to keep certain items, such as their primary residence, car, and personal effects. For example, a debtor's home is typically exempt up to a certain amount ($ X), while their car is usually exempt for 2-3 years or until they've had the vehicle for two years. If all assets are non-exempt, the debtor may be required to sell them to pay off creditors.