The answer to getting out of debt begins here
When clients come to my office and speak to me about a possible bankruptcy they have many questions. I start the conversation by explaining there are several type of bankruptcies. The first one that I explain is the chapter 7 bankruptcies. This is probably the least complicated one of all. Filing this bankruptcy allows individuals to discharge unsecured debt after the nonexempt assets are sold. Now what does that mean?
There are different types of debts. Some are secured and others are unsecured. Lets start by explaining what a secured debt is. Lets use a a family home as an example. Most people that own their home have to make a mortgage payment every month. This is money that was borrowed to buy the home. The bank or whoever you got the money from loaned you the money to buy the house. In order to get this money for the home you must sign a mortgage. The loan is secured with this mortgage on the home. If you do not pay the mortgage payment the bank can foreclose on the property and take it away and sell it in order to recover the money that was loaned. The same worked with a car loan. This is a secured debt because the loan to by the car is secured with the car. If you don’t make the car payment the car will be taken back and sold to recover the money loaned. This is a secured debt. The debt that are secured is part of the debt that will be discharged but you will not be able to keep the asset that is securing the debt. This asset will go to the people that loaned you the money. With unsecured deby it is a completely different story.
An unsecured debt is a debt that is not secured by anything. The biggest example of this is your credit cards. You go to the mall buy a bunch of things with your credit cards and promise that you will pay. There is nothing securing the debt if you don’t pay. The credit card people will only have the option of suing you in courts. They will get a judgment then could try to get assets you own.
Once you file the bankruptcy you will assigned a trustee. This trustee will look at all you debts and your asset. The assets will be divided in two groups nonexempt or exempt. Nonexempt. All the assets will be sold to pay the debts except the debts that are exempt. The individual will be able to keep the exempt ones. If you want a list of what would be considered exempt it will be listed in the assets section of this website. All the other assets will be sold to pay the debts. Once this process is completed the court will grant the individual a judgment discharging all the debts left. The court will mail this document to the individual.