A Chapter 7 Bankruptcy is an asset based bankruptcy. Debtors do not make payments back to their creditors. Instead, debts get wiped out or discharged to the extent there are no non-exempt assets to liquidate and disburse to creditors. The vast majority of Chapter 7 Bankruptcies are what we call no-asset bankruptcies. That is, debtor have no non-exempt (unprotected) assets they would lose to a Chapter 7 trustee.
However, if a Chapter 7 debtor does possess non-exempt assets, the Chapter 7 trustee’s job is to liquidate the asset and turn it into money- money that can be used to disburse to creditors. Maybe debtor has one non-exempt asset- a boat valued at 20k. By the time Chapter 7 trustee pays someone to get the boat and auction it off, Chapter 7 trustee pay procure only 15k in funds. Those funds are used to pay creditors, pro rata, and the balance of the debt gets wiped out (discharged) tax free, forever.
Assuming there are funds to disburse, the debts get paid on a priority basis. Child support/Alimony and taxes get paid before say credit card debt or unsecured loans. Student loans, while not dischargeable, are not priority debts either. So, student loans do not get paid in advance of credit cards or unsecured loans. To me, that is complete crap.
When the dust settles, and the Chapter 7 trustees has administered all assets and paid the money to creditors, trustee then files an application to close the estate and that is it. Typical debtors with nonexempt assets are far better off than had they not filed Chapter 7 Bankruptcy. Getting rid of 100k in debt and losing 10k of non-exempt assets is a good deal.
CONCLUSION
When the time is right or when you are ready, reach out to Minnesota’s nicest bankruptcy law firm at www.kainscott.com. You will be so happy you did.
