There are different kinds of bankruptcy that can be filed to
gain relief from overwhelming financial debt.
Filing bankruptcy under Chapter 7 is one of the more common routes
individuals and businesses chose when seeking relief. Generally, this kind of bankruptcy gathers
the non-exempt assets of the individual or business seeking relief, sells them,
and distributes the earnings to creditors who are owed money. The person(s) or business filing is forgiven
the remaining non-exempt debts and is pushed to get back on track financially
with a fresh start.
When starting a bankruptcy filing under Chapter 7, an
individual, couple, or business must fill out forms about monthly income,
number of liabilities, types of debts, number of assets and their value and
type, as well as where residence has been in the last 180 days to establish the
picture of the full estate holdings and likely income. These details allow bankruptcy professionals
and the court system to begin the process of bankruptcy. Chapter 7 bankruptcy filing will stop
foreclosure, and creditor calls, lawsuits and other debt collection
Those seeking bankruptcy relief also must meet the “means
test” which assesses income levels as well as debts that will be kept, such as
a mortgage, student loans, etc. can be paid with the income levels seen in the last
six months’ history. Depending on the
income and remaining debts, Chapter 7 bankruptcy may or may not be the appropriate
type of bankruptcy to file.
If Chapter 7 bankruptcy is the appropriate route, the court
will appoint a trustee to manage the non-exempt assets of the person or
business filing. The trustee will sell
those assets, will be paid from the assets, and will distribute the remaining cash
to debtors. The remaining debts are
discharged and the person(s) or business filing is forgiven the remaining
non-exempt debts in order to get a fresh start financially.
Exempt assets are defined by the federal government as well
as each state, and the filer must choose which list to adhere to – the federal
or state exemption list. In Texas, up to
$30,000 of personal property is protected for an individual and up to $60,000
is protected for family. Generally, the
exemption list includes social security income, retirement and pension accounts,
life insurance policies, certain personal property up to certain values including
athletic equipment, property up to certain values, some animals, medical
savings accounts, clothing and food, up to two firearms, sacred religious
items, some home furnishings, and a limited amount of jewelry. Married couples receive separate exemptions
for each individual.