A debtor wanting most of the debts to be forgiven usually seeks to file chapter 7 bankruptcy instead of other types of bankruptcy such as chapter 13. Under the chapter 7 bankruptcy laws, most debts are discharged and most creditors must cease collecting efforts and any legal actions against debtors. However, the chapter 7 bankruptcy laws include many exceptions.
Compliance is key when filing chapter 7 bankruptcy. A debtor must comply with chapter 7 bankruptcy laws in order to not have his or her case rejected, converted or dismissed. To comply with the chapter 7 laws, a debtor often hires a bankruptcy lawyer to help with filing and interpreting the complicated laws.
If the bankruptcy court finds it reasonable to issue a discharge order to release debtors of certain debts, creditors can have a say in the matter by filing complaints against the discharge decision of the court. If the creditors do not object to the discharge, the discharge order is often issued within a few months after the first meeting of creditors. The creditors can also file for more time to object.
Most people who file chapter 7 bankruptcy receive a discharge order however there are many reasons the court may reject the case. For example, if a debtor takes advantage of the chapter 7 bankruptcy laws such as committed a crime, fraudulently transferred assets to deceive the bankruptcy court, sabotaged properties that would be liquidated then the court would reject the case.
If the debtor has secured debts, secured by properties such as a house or a motorcycle, then the creditors of secured debts can still claim the assets that were used as collaterals for the debts even after the discharge order has been issued. If a debtor wants to keep the assets that were used as collaterals, according to the chapter 7 bankruptcy laws, the debtor can reaffirm the debts to keep the assets.
Once a discharge of debts has been granted to the chapter 7 filer, creditors of discharged debts may not continue to harass the debtor in order to collect the debts. Creditors that sell off the debts to collection agencies cannot themselves contact the debtors to collect the debt. The collection agency also cannot keep trying to collect from the debtor.
On top of secured debts, there are many types of debts that are exempt from the discharge under the chapter 7 bankruptcy laws. Examples of debts that will still need to be paid are alimony, child support, taxes and guaranteed loans. Chapter 7 bankruptcy laws are complicated and it is important to know which debts will be forgiven before filing.