Chapter 7 of the United States Bankruptcy Code (“Title 11”) generally provides a debtor with a full discharge of all unsecured debts. As the Supreme Court wrote, “The principal purpose of the Bankruptcy Code is to grant a ‘fresh start' to the ‘honest but unfortunate debtor.'” Marrama v. Citizens Bank of Mass., 549 U.S. 365, 367 (2007). The question of what makes an “honest but unfortunate debtor” frequently arises. This essentially means that a debtor will largely be forgiven of all credit card debt, medical bills, debts resulting from foreclosures or repossessions, and other similar debts. However, a debtor will not be forgiven of certain debts that have arisen from fraud and other forms of misconduct. In addition, debtors will typically not be forgiven of certain debt for other policy reasons, including student loan debt.
In furtherance of providing a debtor with a “fresh start,” the Bankruptcy Code provides that debtors will be allowed to retain certain property, otherwise known as “exempt” property. Depending on your state of residence, you may eligible to either use your “state” exemptions or the “federal” exemptions under 11 U.S.C. 522. For example, the federal exemptions, and nearly all state exemptions, provide protections for your homestead, vehicles, clothes, jewelry, and other essentials of everyday living. The purpose of this rule is that courts want to provide debtors with enough of a safety net so that a family is not completely impoverished due to creditor collection such that they become wards of the state.
Prior to receiving the ultimate goal of chapter 7, the bankruptcy discharge under 11 U.S.C. 727, a debtor must participate in a 341 meeting or a “creditor's meeting” in which the debtor must answer many questions related to his bankruptcy filing to the chapter 7 trustee. The role of the chapter 7 trustee is to protect the rights of all unsecured creditors and generally, to ensure that the debtor is not committing a fraud on the court or other creditors.
Other important things that a debtor must complete to receive a discharge is that first (1), the debtor must take a “credit counseling” course to determine whether he truly wants to file for bankruptcy. Second (2), a debtor must fill out his financial information and complete a “means test” to determine whether the debtor will qualify for chapter 7 bankruptcy relief based on his family size and income from the previous six months. Third (3), following the 341 meeting, the debtor must take a “financial management” course to educate the debtor on what steps to take in order to attempt to avoid bankruptcy in the future.
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At Lutfy Law, we know how debt can impact an individual, a family, or a business. If you have difficulty paying bills because of the debt you or your company have accumulated, speak to a bankruptcy attorney in New Jersey today by filling out our online form or calling us at (908) 656-4704. We will schedule a Free Consultation so that you get the answers you need to all your financial questions.