If you're considering filing for bankruptcy, chapter 7 or "liquidation" bankruptcy is probably the option you have on the table.
Chapter 7 bankruptcy is a declaration to the courts that you are unable to meet your financial obligations. By going bankrupt under bankruptcy chapter 7, you give the court the authority to sell some of your assets (except for a small list of exempt assets; see below), sell them, and distribute the proceeds from the sale among your creditors. Once the proceeds have been distributed and you have only the exempt assets left, any debts unpaid by the proceeds are discharged, and you move on debt-free with the record of the bankruptcy on your credit report for up to 8-10 years.
Also, if you are current on your house payment, then you can elect to reaffirm your home note and mortgage and keep your home.
The first thing you should be aware of is that you don't always get to choose whether or not to file under Chapter 7. The courts regularly will examine the finances of someone who is going bankrupt and determine that they belong in Chapter 7 or Chapter 13 regardless of which the filer believes is most appropriate. You can present your opinion to the court, but it may be overridden. If you receive approval to file for Chapter 13 but not Chapter 7, you still have the option of not filing bankruptcy at all.
Once you've been approved to file for bankruptcy chapter 7, you and your attorney will file the relevant paperwork, and the court will appoint someone to liquidate your assets. That person will do so in a way that attempts to make the most profit while adhering to a fairly strict timeline. Then, the court will distribute the money among your creditors and dismiss any remaining debts -- but some debts, including back taxes, school loans, and some security liens, cannot be dismissed in this manner.
Under bankruptcy chapter 7, you are allowed to keep the following assets:
You will also have the choice of foregoing this list of Federal exemptions and instead taking Arkansas State's list of exemptions, but they are generally much less and few people have a good reason to choose the State list.
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