When most people think of "Bankruptcy," they think of Chapter 7. A Chapter 7 Bankruptcy is what is referred to as the "liquidation" bankruptcy wherein all of your "dischargeable" debts are wiped out and all of your non-exempt assets are sold. A "discharge" of debts means that you are no longer liable to pay the debts. In a Chapter 7 you are allowed to "exempt" certain things away from the Bankruptcy Estate. When you file a bankruptcy, an "Estate" is created that is overseen by a Bankruptcy Trustee.

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The Bankruptcy Trustee will review all of your assets to determine if you have any "non-exempt" property which then becomes part of the estate. During this time you are not allowed to sell any of your personal or real property. Note: The Bankruptcy Trustee can also look to see whether or not you fraudulently sold any assets within the prior two years of filing. If it is found that you transferred any non-exempt assets and it was done fraudulently, he or she can force you to pay the amount you received to the Bankruptcy Estate, which will then be dispersed to your creditors.

The United States Supreme Court has stated that bankruptcy was designed to relieve the "honest" debtor from the weight of indebtedness and to permit him or her to have a fresh start, freed from the obligations and responsibilities which may have resulted from misfortunes. Every state has specific "exemptions" that debtors are entitled to take. These exemptions vary greatly from one state to the next. Whatever is not exempted becomes part of the Estate. Typically, what occurs in such situations is that the Trustee will ask if the debtor wishes to "buy-back" the non-exempt item(s). For instance, if your state provides for a $2,000 personal property exemption and your personal property has a fair market value of $3,000, you can then pay the Trustee $1,000 in order to keep the non-exempt portion.

All debts, including out-of-state debts of any kind are dischargeable under a Chapter 7 Bankruptcy, with the exception of the following:

(1) Certain tax debts (Note: If you owe taxes, it is important that you consult with an attorney who will determine whether or not your tax liability is dischargeable.)

(2) Debts for obtaining money, property, services, or credit by means of false pretenses, a false financial statement (if the creditor files a complaint), or fraud.

(3) Debts not listed on the debtor's Chapter 7 Bankruptcy forms.

(4) Debts for fraud, embezzlement, or larceny (if the creditor files a complaint).

(5) Debts for alimony, maintenance, or support and certain other divorce-related and child-support debts including property settlement debts.

(6) Debts for intentional or malicious injury to the person or property of another (if the creditor files a complaint).

(7) Debts for certain fines or penalties.

(8) Debts for educational benefits and student loans are not dischargable unless it is found that by not discharging the debt, it would impose an undue hardship on the debtor and his or her dependents.

(9) Debts for personal injury or death caused by the debtor's operation of a motor vehicle while "under the influence."

(10) Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.

Note: By no means is this listing meant to be exhaustive. There have been other types of debts that are deemed to be non-dischargeable.

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