Bankruptcy and Your Rights
- When a person files Chapter 7, he is usually in a position where he has many creditors and no means with which to pay them. By filing for bankruptcy, he is asking the court to stop the collection efforts and have the creditors paid off in an orderly manner, if possible. The bankruptcy trustee will take ownership of the debtor's property and sell it. Then the trustee will use the proceeds from the sale of the property to pay off the debtor's creditors.
- Only the debtor's non-exempt property can be sold. When a debtor files his bankruptcy petition, he will have created a list of exempt assets and filed it with his petition. The trustee will conduct a 341 meeting where the debtor must swear under oath to affirmations about his financial condition. Creditors can object to any exemptions listed for up to 30 days after the 341 meeting.
- Debtors file for Chapter 7 bankruptcy so that at the end of the process they can have a fresh start. If all of their property were to be taken to satisfy debts, they would be in a much worse position than they were before they ever filed bankruptcy. Exemptions are allowed to make sure that debtors do not end up destitute after going through the bankruptcy process. The property allowed to be exempt is seen as essential the debtor's livelihood.
- Each state has a list of its own exemptions, and the federal government has exemptions that debtors may be able to use as well. The list of federal exemptions should give you an idea of what the law perceives as property essential to the debtor's livelihood. As of 2007, some of the federal exemptions were: equity in property used as a residence up to $20,200; equity in an automobile up to $3,225; household goods and furnishings up to $10,775; and retirement assets.
- The trustee should be able to sell property belonging to the debtor that is not included in a list of exemptions, but in actuality, most Chapter 7 bankruptcy cases are no-asset cases. A no-asset case is a case in which the debtor has no property that can be sold, therefore none of his creditors will be paid before the court grants a discharge of all dischargeable debts. The debtor will no longer have liability for those debts and will be able to get going with his fresh start. As stated by Bankruptcylawfirms.com, "The bankruptcy system is not meant to be a punishment against debtors, but rather a lifeline to allow those with financial troubles to start over."