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Debt Discharge and Property

A typical Chapter 7 bankruptcy may involve the liquidation, or selling off, of a debtor's assets in order to pay past debts. Only after this process is completed, will a debtor near their goal of having their qualifying debts "discharged", or cleared. However, some property is protected from liquidation. In this section, you can learn more about the types of property that are excluded from the liquidation property, and the types that must be included as part of a bankruptcy. In addition, learn more about the Chapter 7 discharge process and what kinds of debt are included (and excluded) from this type of ruling. Please select from the links below to get started.

Debt Discharge

In Chapter 7 bankruptcy some debt is discharged, meaning that the individual debtor is released from personal liability for the debt and the creditor is prevented from taking collection actions against the debtor. However, there are many exceptions to the debt dischargeable in Chapter 7 bankruptcy, however, and debtors should consult with an experienced attorney in order to ensure that key debts will be discharged. Debts that cannot normally be discharged include:

  • Alimony and Child Support
  • Certain Taxes
  • Certain Educational Debts
  • Debts for Willful and Malicious Injury
  • Debts for Death or Personal Injury from the Operation of a Motor Vehicle while Intoxicated
  • Debts for Certain Criminal Restitution Orders

In addition to these exceptions secured creditors may also retain some rights over your property even following the grant of a discharge. If the debtor retains certain secured property, such as an automobile, the creditor may seek to reaffirm the debt. A reaffirmation takes place when the debtor and creditor agree that the debtor will remain liable and pay some or all of a debt, even though it would be discharged in bankruptcy. In return, the creditor promises not to repossess the automobile or other property as long as the debtor continues to pay the debt. Reaffirmation must occur before the order of discharge is entered.

Exempt vs. Non-exempt Property

Although most of an individual's property in Chapter 7 bankruptcy is liquidated to satisfy their debts property that is considered necessary for modern life may be exempt from liquidation. Since bankruptcy is intended to help a struggling debtor relief from the burden of their debt removing all of their property would be counterproductive. No definitive list of exempt property has been created, though the history of court decisions provides some indication of the likelihood that a judge will rule property exempt. Some examples of exempt and non-exempt property include:

Exempt

  • Motor Vehicles, up to a certain value
  • Reasonably necessary clothing
  • Reasonably necessary household goods and furnishings
  • Jewelry, up to a certain value
  • Pensions
  • A portion of equity in their home
  • Tools of their trade, up to a certain value
  • A portion of earned but unpaid wages
  • Public benefits that have accumulated in a bank account
  • Damages awarded for personal injury

Not Exempt

  • Expensive musical instruments, unless the debtor is a professional musician
  • Collections of stamps, coins, or other valuable items
  • Family heirlooms
  • Cash, bank accounts, stocks, bonds, and other investments
  • A second vehicle
  • A second home
Learn About Debt Discharge and Property