What will happen to my secured and unsecured debt in Chapter 7?

Chapter 7 debts are considered unsecured debts such as credit card, store charge card, medical, payday loan, personal loans and other bills. Essentially, chapter 7 debts are the type of debts that a person didn’t have to pledge collateral such as a house to obtain. Usually, a person’s unsecured debts are automatically wiped out without any requirement to pay creditors. In some cases, when a person has secured and unsecured debts, the person may have to give the bankruptcy trustee some of those secured items to pay off creditors. The trustee typically takes these items, sale them and distribute the funds to creditors. However, the U.S. Bankruptcy Courts do have exemptions for secured property. For instance, a person may be able to keep up to $20,000 of equity in their home called the homestead exemption. There is a list of other exemptions which allows a person to keep property such as household appliances, tools used for the job, insurance and retirement plans. However, the type of exemptions varies by state.

Chapter 7 doesn’t affect, or help, secured property such as a person’s home. If the person is trying to save the home from foreclosure, then they should consider chapter 13 bankruptcy and not chapter 7. However, before a person decides to pursue chapter 7 should discuss their options with a bankruptcy lawyer. The lawyer will explain what will happen with secured and unsecured debts and which bankruptcy chapter is the best for their financial circumstances.