How does the Chapter 7 Bankruptcy process work?
Full Question:
Answer:
In a Chapter 7 bankruptcy proceeding, a court-appointed trustee will divide the debtor's property into exempt property and non-exempt property. Types of property that may be exempt are the debtor's home, auto, and household goods.
There are dollar limits on each type of exempt property. The trustee will sell all of the debtor's non-exempt property and use the proceeds to pay off the debtor's unsecured creditors. An unsecured creditor is one who does not have a security interest in any of the debtor's property as an assurance that the loan will be repaid.
Examples of this would be credit card debt or a signature loan. Secured creditors are protected by their security interest in the debtor's property (called collateral). If a debtor stops making payments, the secured creditor can take possession of the debtor's collateral.
Once the exempt property is liquidated and distributed among the unsecured creditors, the remaining unsecured debt is discharged. However, some types of unsecured debt, including student loans, child support, and taxes, cannot be discharged, even in a bankruptcy proceeding.
