If you have started to look into bankruptcy at all, you have undoubtedly learned that there are different types of bankruptcy for which you can file. Chapter 7 is the most commonly filed type of personal bankruptcy in the United States, and is often also called a “liquidation bankruptcy.” This is because, in Chapter 7, a debtor’s non-exempt assets are liquidated (sold), and the proceeds are used by the bankruptcy trustee who is assigned to your case to pay off your creditors.
So, does this mean that filing for Chapter 7 will completely clean you out? Far from it. Notice that only a debtor’s “non-exempt” assets are liquidated. Fortunately, Colorado law provides significant exemptions for debtors, including those for a certain amount of equity in the debtor’s residence (homestead), and specific values of personal property like vehicles, household goods, tools, and clothing, as well as wages and pensions. In fact, most Chapter 7 bankruptcies in the United States are “zero asset” bankruptcies, which means that the person filing has no assets that are reachable for liquidation by the court.
This brings us to the most important part (for debtors) of Chapter 7 bankruptcy: the discharge.
Once a bankruptcy is complete, your leftover debts will usually be wiped out, or “discharged,” by the court. Here are some of the kinds of debts that are typically eliminated by Chapter 7:
In zero-asset bankruptcies, people who file receive the full benefit of the discharge without having to part with any of their personal assets. As a result, as soon as their bankruptcy is completed, they are in a better financial position than they were before they filed. Importantly, however, there are certain categories of debts, like unpaid child support, that cannot be eliminated through Chapter 7. The best way to learn whether you can benefit from filing is to speak with a Colorado bankruptcy attorney as soon as you can.