A Chapter 7 Bankruptcy is a bankruptcy where you do not make payments back to your creditors. Your liability for your debt goes away and you don’t make any payments back to your creditors. You say, well what’s the catch because this sounds too good to be true? There really isn’t a catch but the focus in a Chapter 7 Bankruptcy is on your assets. If your assets are all “exempt” that means they cannot be taken by a Chapter 7 trustee and used to satisfy your debts. At the end of a 4 month process, whatever debts don’t get paid off, get wiped out, tax free. The vast majority of Chapter 7 Bankruptcies work just like stated.
However, there are Chapter 7 Bankruptcy cases where there are non-exempt assets. These are assets that belong to the bankruptcy estate and get used to pay down your debt. Whatever debt that doesn’t get paid off, gets wiped out tax free. As stated above, most Chapter 7 Bankruptcy cases have nothing to disburse to creditors—they have no non-exempt assets.
In the non-exempt cases, the vast majority of non-exempt cases have modest non-exempt assets. You might be talking about 6k or less. If you have 60k in debt and you lose 6k in assets, and you get rid of your liability on 54k in debt, tax free, that is a wonderful deal. So many people think if they lose assets in a Chapter 7 Bankruptcy it is the end of the world. It is not. It is all about perspective. Before you filed bankruptcy wouldn’t you have agreed to pay 6k for getting rid of 60k tax free? Of course!
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