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About Chapter 7 Bankruptcy

In Chapter 7, the bankruptcy court discharges your obligation to pay your unsecured creditors quickly – usually in about 90 days. In Chapter 13, you are required  to make periodic payments over a period of either three or five years. The payments depend on your overall financial condition and often pay only a very small % of total debt. What is left at the end of the applicable time period is discharged.  Most people considering bankruptcy prefer filing under Chapter 7 because they no longer have to worry about paying back their unsecured creditors but can still keep paying their secured creditors for property they want to keep.

Common Chapter 7 Bankruptcy Questions

Who are secured creditors?
A secured creditor has security for your debt, such as a bank or savings & loan that holds a mortgage on your house, or the bank that holds your car loan. If you stop paying your car payment, the bank can come and pick up your car.
Who are unsecured creditors?
An unsecured creditor can’t take from you the property that you bought with their money, such as credit card companies. In most cases credit card companies do not have security on the food or clothes that you bought with their credit card.  Another typical example of an unsecured creditor is a medical facility such as you doctor and hospital.
Do I lose everything I own if I file for bankruptcy?
No, the U.S. Government and State of Minnesota have created exemptions that protect many of your assets from creditors. For example, in Minnesota, a very generous homestead exemption is allowed.
What happens to my house if I file for bankruptcy?
If you are current on your mortgage payments, nothing will happen. You keep paying your mortgage payments and you will keep your house. If you are behind on your house payments, then there are different rules and you should consider filing a Chapter 13 to catch up.
What happens to my vehicle if I file for bankruptcy?
When you file for bankruptcy, you can usually keep your vehicle if it doesn’t have a loan on it by claiming it as exempt. However, this will depend on the value of your vehicle.  In the case of a financed vehicle some people simply keep making the car payments and as long as they do so the lender is content, However lenders can and often do insist that you file a reaffirmation agreement with the court that preserves all of the terms of the original debt. If you cannot or do not wish to pay for a vehicle, you can simple return it to the lender and discharge the debt.
What happens to my pension if I file for bankruptcy?
Unless you have well over a million dollars in a pension, the funds will be totally protected if they are in a tax-qualified plan. If you have other funds intended for retirement, there may be some limit to what you can protect, but at a minimum an amount “reasonable necessary” for your retirement will be protected.
Will I lose all of my personal property if I file for bankruptcy?
No, unless you are quite wealthy and have a lot of expensive property, you don’t have to worry that you will lose general household goods and furnishing. However, if you own a boat, snowmobile, or other recreational vehicle, you might have to give them up.
Will someone take my tools or jewelry?
The tools and jewelry of most people are protected to a specified extent. We will have to see exactly what you have, determine its current value and how much is allowed.