Since the economic recession began back in 2008, there has been a rejuvenated interest in Chapter 7 bankruptcy. With the average American having over $20,000 in credit card debt you can see how this chapter of bankruptcy filing has become so popular. For individuals with large amounts of unsecured debts Chapter 7 bankruptcy is King. Bankruptcy places debts into three categories. These categories are, secured debts, unsecured debts and priority debts. Basically, unsecured debts like credit cards, medical bills and payday loans are considered unsecured non-priority debts and will be discharged in a chapter 7 bankruptcy. On the other hand, cars and houses fall in the category of secured debts and are not dischargeable when filing bankruptcy under Chapter 7. The rule of thumb for secured debts is, if you want to keep it you have to pay for it.
The ultimate goal of filing chapter 7 bankruptcy is to become debt-free. This is a goal and not a guarantee. Depending of the type of debt that the individual filing for bankruptcy has will decide the outcome of whether or not they become debt-free from the bankruptcy. In a chapter 7 bankruptcy, the debtor must first qualify under the means test. Once they qualify, their bankruptcy attorney will have to see what property can be protected under the exemption laws for their state. If there is any property that is unprotected and seen as of value to the bankruptcy trustee, the trustee could seize the property to sell it and distribute it amongst the creditors. In today’s soft market, many times the time it takes to gather and sell property outweighs the benefits. If the debtor has no secured property to continue paying on and all their unsecured debt is wiped out in the Chapter 7 bankruptcy discharge, the debtor will and up virtually debt-free.