The Chapter 7 Bankruptcy Process
If a bankruptcy court approves your formal filing, they will promptly issue an “automatic stay,” an order that freezes all collections actions against you. If you have been experiencing creditor harassment, for example, that will stop: The automatic stay prohibits collection agents from contacting you. Any efforts to foreclose your property or repossess your vehicle must also immediately cease, potentially saving your car and home.
Next, your bankruptcy court will appoint a trustee to oversee your liquidation process. All of your property will enter what is called a “bankruptcy estate,” but where nonexempt assets will be liquidated to repay your creditors. In exchange, you will be permitted to discharge unsecured debts at the end of the process.
Protecting Your Assets
However, with the help of an experienced Springfield Chapter 7 bankruptcy attorney, you can minimize the impact of liquidation on your assets. “Exempt” property is shielded from the liquidation process, and we can help optimize your estate to best leverage exemption protections to safeguard as much of your assets as possible. In layman’s terms, this means you will not have to give your house, your car, or other things you need to live your life. In many scenarios, with the right planning, little to nothing gets liquidated.
Options When Filing Your Exempt Property
When filing your exempt property, you have the option of choosing between federal exemptions and the state of Massachusetts’s exemptions. Massachusetts has especially generous exemption thresholds, so you will generally want to operate under the state’s rules.
To give you an idea of how much of your exempt property is protected from Chapter 7 liquidation, the state of Massachusetts offers some of the following exemptions:
- Up to $500,000 in homestead (your primary residence and home)
- Up to $15,000 in household furniture
- All necessary clothing and bed furnishings (sheets, pillows)
- Up to $500 a month in utilities
- Up to $7,500 for your vehicle
- 85% of your gross earnings or your weekly income on Massachusetts minimum wage income multiplied by 50, whichever is greater
As you can see, a great deal, if not the entirety, of your estate may qualify as exempt, making the impact of liquidation negligible. Items that do tend to be considered “nonexempt,” and thus subject to liquidation, are often also considered items of luxury. This can include a second home or property, an additional vehicle, a collection of valuable items, or certain types of investments or bank accounts. While these can be liquidated during the Chapter 7 process, remember that your unsecured debts will be discharged at the end of the process, giving you a fresh financial slate.
Discharging Your Debt
Once the liquidation process has been completed and verified by the bankruptcy court, you will be permitted to discharge all unsecured debts. This means you will not owe any additional payments to the discharged debts, and creditors will no longer be allowed to pester you about repaying them.
Types of unsecured debts you can typically discharge include:
- Credit card debt
- Medical debt
- Utility bill debt
- Student loan debt (under certain circumstances)
- Income taxes (if not already subject to a government lien)
- Personal loans without a security agreement or mortgage attached
- Court judgments that have not yet been enforced
These categories of debt can represent the majority, if not the entirety, of the overwhelming debt that can quickly take over lives. You should also be aware that certain types of debt, called secured debt, cannot be discharged through Chapter 7 bankruptcy. Exceptions and special circumstances do exist across many debt categories, so it is best to review the details of what types of debt you can and cannot discharge with a qualified lawyer.