The bankruptcy process is often confusing for many people due to many misconceptions about how the process works and what the potential outcomes can be. When filing for Chapter 7 there are some important aspects of debts and assets that are often misunderstood, leaving the debtor with a false impression of what to expect.
Not All Debts Are Included
One of the misconceptions about Chapter 7 bankruptcy is that it does not include all debts. This is a big misleading because the law requires that all debts be listed on the petition, but that does not guarantee that all debts will be included in the debt discharge. In a Chapter 7 case, it is highly likely that all listed creditors will be considered in the case so as to avoid preferential treatment of the creditors. However, the debtor may be able to choose to repay certain creditors while others are eliminated, but this applies strictly to secured debt creditors such as a mortgage or car loan holder.
Assets Will Be Liquidated
Perhaps one of the biggest fears in bankruptcy is what will happen to assets in the process. Many people assume that their possessions and property of value are automatically put up for liquidation to satisfy debts. In fact, bankruptcy laws do just the opposite and much of one’s property is protected during a filing. While there are some instances in which a few assets may be liquidated to satisfy debts to creditors, bankruptcy exemption laws protect a lot of a debtor’s property.