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One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property. Among the schedules that an individual debtor will file is a schedule of "exempt" property. The Bankruptcy Code allows an individual debtor to protect some property from the claims of creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's home state. Relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed. A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives. A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors. If a joint petition is filed, only one filing fee is charged. Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. Creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor. Between 20 and 40 days after the petition is filed, the case trustee will hold a meeting of creditors. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property. If a husband and wife have filed a joint petition, they both must attend the creditors' meeting and answer questions. The bankruptcy court will issue a discharge generally, 60 to 90 days after the date first set for the meeting of creditors. A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow. Among other reasons, the court may deny the debtor a discharge if it finds that the debtor fraudulently transferred, concealed, or destroyed property. Depending on individual circumstances, if a debtor wishes to keep certain secured property (such as an automobile), he or she may decide to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor that the debtor will remain liable and will pay all or a portion of the money owed. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter 7. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational loans made or guaranteed by a governmental unit, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders. |
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