How Do Creditors Get Paid in a Chapter 7 Filing?

Chapter 7 bankruptcy is a legal process which doesn’t provide Chapter 7 creditors with very little—if any repayment on debts. When people file for chapter 7 bankruptcy, they are seeking to discharge their unsecured debts. Typically, these debts include medical bills, credit card accounts, and personal or payday loans. In other words, when individuals’ file chapter 7 bankruptcy, they are trying to eliminate, or cancel, all their debts without repaying them.

When Chapter 7 Creditors Receive Are Repaid, It’s Typically Not Very Much Money

Once chapter 7 is filed, the individuals essentially turn over their finances to a court-appointed person called a bankruptcy trustee. The trustee’s responsibility is to examine people’s paperwork for the list of non-exempt property items. These items—if any—can be sold by the bankruptcy trustee. Any and all money from the sell is paid to the creditors. However, according to Nolo, individuals have the option of keeping property items and paying the trustee the cash value. However, what’s unfortunate for chapter 7 creditors is that the bankruptcy trustee may abandon the property. The term abandon in chapter 7 bankruptcy means that the trustee decides to return the property back to people. There are a variety of reasons for abandoning the property which includes the items being too cumbersome to sell or the items aren’t worth much.

Chapter 7 Creditors Can Request Property Be Sold

People are typically allowed to keep secured debt backed by collateral such as homes and cars when they are current on their payments. However, if people are behind in their payment they are at risk for creditors requesting the property be sold. Thus, chapter 7 isn’t for people facing foreclosure or behind in their monthly payments.

Chapter 7 Creditors Receive No Money

The purpose of chapter 7 is for people who can’t afford to pay to have the ability to start over financially. Therefore creditors’ desire to be repaid is secondary. This means if people aren’t required to turn over non-exempt property for sell—creditors receive no payments.

Contact Bankruptcy Attorneys Who Specializes In Chapter 7

Bankruptcy attorneys will guide people the chapter 7 process. For instance, people may have to repay debts which can’t be discharged. Bankruptcy attorneys will explain which debts are considered non-dischargeable. Thus, those creditors will have to be repaid.