Chapter 7 Bankruptcy can be a scary set of words put together. What is a Chapter 7 Bankruptcy and how does it benefit those people who file one?
Chapter 7 Bankruptcy is a “liquidation” bankruptcy which seems scary until you really understand it better. You see, in Chapter 7 Bankruptcy, debtors do not make payments back to their creditors. Instead, debtor’s liability on the underlying debt is “discharged” or wiped out, tax free, forever. In exchange for that awesome gift, debtors are required to disclose ALL their assets and debts and answer all questions pertaining to their financial set of circumstances.
When a debtor discloses all their assets to the bankruptcy court they also have an opportunity to “exempt” many assets using either the state set of exemptions in Minnesota or Federal set of exemptions. The vast majority of debtors who file Chapter 7 Bankruptcy are able to exempt all their assets and, therefore, lose no assets to the Chapter 7 Bankruptcy estate. Now, some debtors will have assets that cannot be exempted and those assets, or the value of those assets, must be turned over to the estate. The estate uses the money gained from the “liquidation” of those assets to disburse to creditors pro rata, and whatever debt does not get paid off gets wiped out.
For example, say a debtor has 10k in assets they cannot protect. The estate then liquidates the asset (sells it) and takes the 10k to paid down our debt. If you have 100k in debt, and 10k gets paid, 90k in debt would be discharged, or wiped out, tax free, forever.
What is the benefit to this debtor in the above example? They discharge 90k in debt. For most debtors, they would have discharged the entire 100k in debt. That is the benefit.
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When the time is right, or when you are ready, reach out to Minnesota’s largest bankruptcy law firm by going now to www.lifebacklaw.com. You will be so thankful you did.
