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Chapter 7 Bankruptcy

The trade

In Chapter 7 you make a trade with the court. You get something and you give up something. What you get is debt forgiveness. What you give up is any excess property that you might own.

Debt Forgiveness

In a Chapter 7, the bankruptcy court will forgive many common debts like credit cards, signature loans, hospital bills, repossession balances, broken leases, business loans, and other common "unsecured" (no collateral) debts. As a bonus, you also get relief from collection efforts. Creditors and their collections agents must stop calling you and mailing you bills. Their lawyers must stop suing you and stop garnishing your wages.

If you have a home with a mortgage, you can usually choose between (A) keeping your home and keeping your mortgage payments current or, (B) getting rid of the house and getting rid of the mortgage debt (which makes sense if you owe more on the mortgage than the house is worth). These same two choices often apply to your vehicles, but there is a limit on how much "vehicle" you can keep. There are some debts you can't escape in a Chapter 7, like student loans, child support, alimony, recent taxes, and some others.

Surrender of excess property or buy-back

What you give up in Chapter 7 is any excess property (things of value) you might own. Before explaining what this means, keep in mind that the majority of people who file Chapter seven in Florida don't have any excess property and as a result don't have to give up anything. But if you do have excess property it is then sold and the proceeds split among your creditors. So, what does this mean, excess property? The way the law is written there is a list of things you can keep, and these things are called "exempt property." Click here to see a list of property that is exempt in Florida. If you own something and it is on this list, you get to keep it in a Chapter seven bankruptcy because it is "exempt" from the claims of creditors. If you own something that is not on this list it is "non-exempt" you give it up (or enter into a buy-back agreement) in return for your forgiveness of debt described above. You should also know that the list of Chapter 7 exempt property varies from state to state. Also, your history of residency can affect whether the list of exempt property applicable to your case is the list of Florida or some other state, or even the Federal List of exemptions.

You can read more about the actual process of a Chapter 7 case, step by step, from the initial consultation all the way through the discharge.

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