What Happens To Your Debts In Chapter 7 Bankruptcy?
Posted on: 26 August 2021
People often turn to bankruptcy when they need relief from their debts, and one branch they might use is Chapter 7. In a Chapter 7 case, you can find relief from your debts in several ways. Before you file, you might wonder how filing for Chapter 7 affects your debts. In other words, what happens to them when you file? Here is an explanation of what happens to a person's debts when they file for Chapter 7 bankruptcy.
The Court Divides Them Into Two Categories
In a bankruptcy case, the court divides a person's debts into two categories. The first category is qualifying debts, and the second category is non-qualifying debts. The way bankruptcy works with debts is different with each category. If you have non-qualifying debts in a Chapter 7 case, such as child support or alimony, the court does nothing with them. You will still have to pay these debts in full after filing your case.
The Court Takes Any Qualifying Assets
If you have any assets when you file for bankruptcy, the court might take them from you. They can only take qualifying assets, which are the things you own that you cannot exempt. You may or may not have any.
They Sell the Assets to Pay the Debts
If you have qualifying assets, they will take them and sell them. With the money they receive, they will pay your creditors some of the money you owe. In most cases, a person does not have enough assets to sell to repay all the qualifying debts they owe. As a result, you will have debts remaining that you will not pay.
They Discharge the Remaining Debts
With the remaining debts you have, the court will provide a discharge. A discharge is equal to debt forgiveness. When the court discharges your debts, it wipes them away as if you do not owe them. Your creditors cannot try to collect any debt that the court discharged. These debts are no longer valid if you filed Chapter 7 and received a discharge. Some common debts that the court discharges are medical bills and credit card debts, but you might also have others.
If you want to find relief from your debt load, you might want to consider using Chapter 7. Chapter 7 can be highly beneficial to many people, and you can learn more about it by talking to a Chapter 7 bankruptcy attorney.
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