What is Chapter 7 Bankruptcy & How Does Filing Work?
Chapter 7 bankruptcy is a legal process that people use to eliminate debt. However, not all debts are eliminated.
Unsecured & Secured Debts
The most common type of debt that people can get rid of in bankruptcy is unsecured debts. Unsecured debts are debts that do not have collateral, such as medical debts, credit cards, and payday loans.
There are certain types of unsecured debts that cannot be wiped out in bankruptcy – such as child support, alimony, taxes, student loans and a few others that are less common.
Secured debts, on the other hand, are a little more complicated. Secured debts are defined as any debt that is secured by a property – usually with a lien. Common examples are home mortgages and auto loans.
Now it is possible to eliminate secured loans as well in chapter 7. But you would have to surrender or return the collateral to do so.
Will You Get to Keep Your Property?
Most people get to keep all of their property when they file chapter 7 except in a few cases where the property can be seized.
You can also keep your house and/or car, but you’ll need to keep making the monthly payments to do so. (More on that later in our “Reaffirmation Agreements” section)
In fact, chapter 7 is nicknamed liquidation bankruptcy for the same reason. The term liquidation means to convert an asset to cash. This is usually done by seizing the property and then selling or auctioning it.
When you file a chapter 7 case, a trustee is appointed. This trustee’s main task is to determine if there are any assets in the case that are eligible to be liquidated.
However, there are also certain exemptions in Chapter 7. Exemptions determine which property a person can keep when he files for bankruptcy. Exemptions are a part of state law and therefore vary depending on where you live. In Mississippi, a person can keep their home if they have less than $75,000 in equity.
Most people can also keep their cars as long as they don’t have too much equity. There is a $10,000 personal property exemption that includes vehicles. Additionally, if a married couple files the bankruptcy together, the exemption is doubled to $20,000.
Here’s a detailed article on bankruptcy exemptions in Mississippi. Our bankruptcy lawyers in Jackson, MS can give you expert advice on the provisions of Chapter 7 bankruptcy!
Now, once you file a bankruptcy case, something called the Automatic Stay goes into effect.