Dismissal Bankruptcy
When most people talk about bankruptcy, they are referring to a dismissal bankruptcy or liquidation. The official legal name for this type of proceeding is Chapter 7 bankruptcy, which gets its name from the particular section of the bankruptcy code. Chapter 7 is designed to eliminate your debt since you do not have to worry about repayment.In exchange for discharging your financial obligations, you’ll have to perform what is called liquidation for your nonexempt assets. What does this mean? Well, it means that you’ll have to sell your nonexempt belongings in order to help pay your unpaid bills. The good news (if you can call it good news) is that most people who file for Chapter 7 bankruptcy do not have many nonexempt assets, so this does not really apply to them.
When we speak of nonexempt assets, we’re talking about personal belongings that are not protected by federal or state and bankruptcy laws. For example, if you live in a state with unlimited homestead exemption (such as exists in Florida, Texas, or other states), then you would not have to sell your primary place of residence in order to pay for unsecured debts like credit card bills. It doesn’t matter how valuable your home is, it would still be protected under the statutes.
Most states have a certain level of protection for your home and car, even if your protection is not unlimited. Like we said before, most people don’t have a lot of nonexempt assets that they would have to sell, but if you do have some valuable personal property you may have to liquidate it in order to pay those bills.
What if you don’t qualify for Chapter 7 liquidation? With the recent changes in the bankruptcy code, you’ll have to go through some extra steps in order to prove that you need Chapter 7 bankruptcy. If you do not qualify, then you may need to choose a repayment plan known as Chapter 13 bankruptcy. This allows you to pay off creditors over the next several years.
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