According to the U.S. Bankruptcy Court, when you file for Chapter 7 bankruptcy protection, you must provide a list all of your creditors (regardless of whether they are secured by an asset or unsecured) and the amount and nature of their claims. The Expert Law website says a trustee is appointed by the bankruptcy court to ensure that your creditors are paid as much as possible of what you owe to them. The trustee categorizes the debtor's property as "exempt" or "non-exempt." The non-exempt property is then liquidated, with the proceeds used to pay off the debtor's unsecured creditors.
Secured Creditors
A creditor is considered to be a "secured creditor" if the financial obligation to the payee is protected by a "security interest" in the debtor's property. For example if a debtor would like to retain a secured property such as car he may opt to reaffirm the debt. This is simply an agreement to pay for the item in exchange for the creditor's promise not to repossess the vehicle. If the debtor fails to make payments, the creditor regains the right to take back the property.
Unsecured Creditors
An "unsecured creditor" on the other hand does not have a security interest in any of the debtor's property. This is commonly the case in outstanding credit card debt. Most unsecured debts are discharged in a Chapter 7 bankruptcy. However, certain debts incurred within 60 days of a bankruptcy petition, such as charging luxury items or obtaining cash advances, will not typically be forgiven.
Exempt Property
U.S. Bankruptcy Court allows an individual debtor to protect some property from the claims of creditors because of its exempt status under federal bankruptcy law or under the provisions of the debtor's home state. The definition of exempt property can vary from state to state.
Non-Dischargable Debts
Some debts will not likely be discharged in bankruptcy. Non-dischargeable debts include most student loans, child support, taxes and damage awards that occurred due to intentional wrongful acts or intoxication.
Hiding Assets
Expert Law says some debtors have family members or friends take possession of some of their assets prior to filing for bankruptcy in an attempt to avoid losing them during bankruptcy proceedings. This is considered to be a fraudulent act and if discovered it can lead to a discharge of the bankruptcy petition and possible criminal charges.
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