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Chapter 7 is the most common form of bankruptcy and goes by the name of Fresh Start or Liquidation Bankruptcy. It usually takes about 3 1/2 months from beginning to forgiveness of debt. See the chapter 7 timeline. Compare to chapter 13.
Forgiveness of debt. In a Chapter 7 you are usually forgiven certain kinds of debts like credit cards, signature loans, medical debts, and auto repossession debts, even if you have been taken to court and had a judgment entered against you. (Some debts are not forgiven in a Chapter 7, however. These include student loans, some taxes, child support, alimony, criminal restitution, fraud, motor vehicle accidents caused by drugs or alcohol, and a few others.)
Exempt property. In return for this forgiveness of debt, you agree to keep only certain of your property (your "exempt" property), turning the rest of what you own (your "non-exempt property) over to your creditors. In Florida, one of the most important items you can keep is your homestead. That means your house or mobile home and a certain amount of land. Of course, if you still owe money on your homestead, you must continue to make the mortgage payments -- you don't get a free house. There is a long list of other exemptions (things you are allowed to keep), but here are some of the more common ones, again, property you are allowed to keep:
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Up to $1000 worth of automobile beyond what is owed on it (but keep up the car payments)
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$1000 worth of household goods or cash. That may not sound like much but we value everything at what it would bring at auction not what it costs brand new. So $1000 can go a long way.
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Your 401(k) plan
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Your pension plan
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Your social security benefits
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Any money you earn after you file your bankruptcy case.
Married couples. The above list is for one person filing. If a married couple files, each person gets an identical set of exemptions. (If you are married it is not required that both file, either husband or wife can file alone). Theoretically, you turn over your excess property to the court for distribution to your creditors. However, in practice many people agree to pay to the court additional money (a "buy-back agreement") so that they can keep most of all their property.
Surrender, Redemption, and Reaffirmation. Creditors who have collateral on their loans (car loans, mortgage loans, furniture loans) are entitled to special treatment because of the collateral. You must choose between:
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Surrender (give them back the collateral and forget the debt)
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Redemption. Like surrender, but instead of surrendering the collateral, you surrender an amount of cash equal to the value of the collateral. This is rarely used because the one thing you won't have just after filing bankruptcy is a large roll of cash to give to a creditor on a Redemption. Rare Exception: you have a rich uncle who will lend you the case to do the redemption.
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Reaffirmation. The "R" word, because you agree to be bound to this loan as if Bankruptcy had never occurred. It constitutes a complete detour around bankruptcy for the lucky creditor with whom you reaffirm the debt. OK to reaffirm a home, sometimes a car, but little else makes sense for reaffirmation. Reaffirmation always reminds me of Captain Ahab all wound up with rope around Moby Dick as the whale dives back into the sea. The rope is the Reaffirmation Agreement. You are Captain Ahab.
Discharge. If you are honest in your bankruptcy court papers and you have not been disposing of your property to prevent your creditors from getting it (like putting your car in your son's name so the creditors will not seize the car - Hint--big No-No), then the Bankruptcy Court will usually grant you your forgiveness of debt (your "Discharge", as in "Discharge of your obligation to pay the debts") about 3 1/2 months after you filed your Petition. See a more detailed time-line of the Chapter 7 process.
Distribution and Closing the case. When you file your Petition, your bankruptcy case essentially splits into two rails like a railroad track. The two rails are related but they deal with different matters. One rail concerns your forgiveness of debt, "your Discharge", and the other rail concerns the Trustee gathering up your excess property, turning it into cash, and dividing it among your creditors ("the Distribution"). Often there is no Distribution because there is no excess property above and beyond the debtor's exempt property -- these are called (from the Trustee's point of view) "no asset" cases . There are, then, two paths or rails to your bankruptcy case, Discharge of debt and Distribution of excess assets, but they really have little to do with each other. Your case is not officially over until the Court produces two documents. The first is the Discharge and the other is the Order Closing the Estate. Once you get your Discharge, you can breath easily, it really doesn't matter how long the Trustee takes (and there is no time limit) to gather up your excess assets ("the bankruptcy estate"), perform the Distribution, and ask the Court to close the case. You have what you want -- the Discharge. However, many clients don't feel really comfortable until the Court closes the estate. That can take a year or more from the filing of the petition if there are assets in the case to be distributed.
Permanent Injunction. Creditors whose debts are discharged (forgiven) are permanently enjoined (forever forbidden) from trying to collect the debt. However, creditors who have collateral on their loans (car loans, mortgage loans, furniture loans) can repossess the collateral if you default on the payments. If they do repossess, then they are not permitted to sue you for the remaining money you owe them, unless you have Reaffirmed the debt.
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