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Fresh Start Bankruptcy

A Chapter 7 bankruptcy cancels most debt completely. It is the most commonly utilized form of bankruptcy. Generally, a Chapter 7 will discharge (or eliminate) unsecured debt and any secured debts you surrender to provide you a fresh start. However, some debts can't be discharged for example child or spousal support, debt based on fraud, or student loans.

In Chapter 7 a trustee is appointed by the court to take over and administer your property. A Chapter 7 provides for a liquidation (or sell-off) of the debtor's assets, but only those assets that are not exempt. In the vast majority of cases the debtor's assets will be exempt from the bankruptcy trustee taking them (in other words, protected so that you may keep those assets). However, any assets that are not exempt, may be required to be turned over to the trustee for liquidation. The trustee will then distribute any proceeds to creditors according to priorities set out in the bankruptcy code.

Any person whose debts consist primarily of consumer debts and value of whose nonexempt property is less than $150,000 will have to go through a legal analysis called "The Means Test." There is a complex analysis that happens to see if a person qualifies for Chapter 7 Bankruptcy or not. In a very general way, if the debtor has too much monthly income over necessary expenses per month as determined by some complex bankruptcy rules, the debtor may not qualify for Chapter 7 Bankruptcy and may be required to file a Chapter 13 Bankruptcy (a re-organization of debt through a 3 to 5 year payment plan) for debt relief.

Creditors whose debts have been discharged in bankruptcy are prohibited from ever taking any action to collect the debt.

Click here to see where Chapter 7 bankruptcies are held.

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