Chapter 7 Liquidation
When an individual applies for Chapter 7 bankruptcy, liquidation ensues. It signifies that a person is essentially starting over financially as of the date of filing. Almost all of an individual's debts at the time of filing are placed on hold by the automatic stay, and are discharged at the conclusion of bankruptcy. In the meantime, the non-exempt properties will be sold by a court-appointed bankruptcy trustee, who will use the proceeds to repay the debts until the funds run out. Unpaid debts will be discharged, so a debtor is not required to pay them if he or she chooses not to.
Plan for Chapter 13 Repayment
In Chapter 13 bankruptcy, a debtor's assets are not liquidated. A debtor will also have the option to prevent the foreclosure of their residence. A debtor will be required to pay his or her debts through a repayment plan approved by the bankruptcy court. A repayment plan lasts between three and five years. The discharge of any unpaid financial obligations not covered by the repayment plan. Nevertheless, an individual must make all required payments.
The automatic stay is distinct from the debt discharge, but it aides the discharge by halting all activity beginning on the filing date. When a person declares bankruptcy, creditors are prevented from taking action against him or her. The automatic stay will require creditors to seek permission from the bankruptcy court before attempting to collect debts owed to them by an individual. The majority of the time, bankruptcy courts do not allow exceptions to the automatic stay. The automatic stay will not be altered prior to the beginning of the discharge.
Exceptions to Release
There are certain obligations that cannot be discharged. The most common debts that cannot be discharged are student loans and family support obligations. The student loan can only be discharged if the borrower can demonstrate that ""undue hardship"" has rendered repayment impossible. In addition, there is no known instance in which a court has discharged domestic obligations such as spousal support, alimony, or child support.
Once the final order of discharge has been issued, creditors of discharged debts may no longer collect payments, and if they do, they will be charged with contempt.
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