Friday, September 10, 2010

Guest Post: Exemptions Under Chapter 7 Bankruptcy

The debtor has to sell his entire non-exempt property to pay off his unsecured debt if he is planning to file bankruptcy under Chapter 7.

The debtor has to go to the local Federal Bankruptcy court and file a petition if you are thinking of filing bankruptcy. The process of filing bankruptcy includes a complete statement of the owed amount and assets. The bankruptcy petition would be dismissed if a filer misrepresents or fails to include his assets while considering Chapter 7.

An "automatic stay" is placed as soon as the petition is filed.
The creditors are not allowed to collect the debt with the enforcement of the automatic stay order. If they want to collect the debt then they have to persuade the court that with the affect of the automatic stay their interest would be hampered.

The trustee appointed by the bankruptcy judge would liquidate the debtor’s nonexempt property and the amount would be distributed among the creditor as per the Bankruptcy Code. The debtor gets discharge from the piling burden of debt but he loses control over his nonexempt property.

Chapter 7 has certain exemptions:

Things that are exempted from liquidation:
1) Unemployment insurance
2) Pensions and IRAs Plans
3) Alimony and child support
4) House Equity less than $ 17,425
5) Things used for personal purpose up to $9,300
6) Ornaments and attires
7) Public benefits as well as conveyance

With these exemptions there are few additional exemptions that the federal law offers known as wild card exemption.

Wild card exemption includes:
  1. Nonexempt property: There would be an exemption up to $11,200 on the taxable property as per the total amount of the wild card exemption. The debtor can save his taxable property up to the total amount of the wild card exemption if he has any intention to use the wild card exemption.
  2. Partial exemption of property: Under the Federal law the property is exempted to a stipulated amount. Under the wild card exemption the property that has not been exempted this portion can be excused and the debtors are obliged to regain control over his property.
  3. Discharge of Cash: The cash and bank funds can be discharged with the help of wild card exemption.

Changes in the Chapter 7 proceedings with the introduction of new law:
Before the introduction of the new law the debtor could file for bankruptcy at any time. But now if the debtor is filing under personal bankruptcy for instance chapter 7 then you need to under go credit counseling session within 6 months of filing.

Initially the bankruptcy court used to decide whether you qualify for a Chapter 7 bankruptcy or not. But now with the implementation of the new law you are liable to qualify for a Chapter 7 bankruptcy that would be decided by two-part Means Test.

If you fail to qualify for the Means Test then the debtor is left with no choice other than to file for Chapter 13 and repay his debts.

In 6 years the debtor could file for another chapter 7 before the implementation of new law. The new bankruptcy law would prolong the period from 6 to 8 years between filing Chapter 7's.

Author bio:
This is a guest post by Kevin Craig who is a financial writer. He has helped lots of debt burdened people with free counseling and advices on many finance related topics. If you are interested in writing a guest post, please contact Seattle Simplicity at the Email address listed in the sidebar.

Disclaimer: The information provided here is not meant as tax or bankruptcy advice. I encourages readers to consult with a bankruptcy attorney or financial adviser if they have specific questions about bankruptcy.

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