Legal Question in Bankruptcy in Michigan

discharged debt

when a person is forgiven their unsecured debts in a chapter 7 bankruptcy, who pays this debt and where does it go?

Asked on 7/09/09, 8:52 am

2 Answers from Attorneys

Steven Larsen Larsen Law PLC

Re: discharged debt

Very basically:

When a person files ch 7 and the court accepts the filing (subject to means test and other issues), then the assets and liabilities of the filing person/entity become a new estate under the control of the court. Basically the estate is now owned by the courts.

Except for certain amounts of 'exempt' assets, you lose all of your assets. An example of an asset that could be exempt is, you might be able to keep your home if you have less than ~$20,000-30,000+ of equity(depending on the whether you use state or federal exemption schedules). So, if you owe $200,000 on the home and it is worth $220,000 you would likely be able to keep it.

The unsecured debts/liabilities are to be listed and the creditors notified, and unless they 'object' and the court agrees, those unsecured debts are forgiven and each creditor writes off or charges off the debt. Some debts like taxes owed, student loans, child support, etc are not typically forgiven.

Bankruptcy law in the USA was, in part, set up to allow entrepreneurs and business people knowledge that if they took a risk (that might create jobs and commerce) and failed they would not go to debtor's prison or have a hand cut off. You get a chance at a fresh start ~every 8 years.

"A client does not care how much the attorney knows rather the client wants to know how much the attorney cares"

Steven Larsen, Esq

Larsen Law PLC

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Answered on 7/09/09, 8:10 pm
Lesley Hoenig Lesley A. Hoenig, Attorney at Law

Re: discharged debt

When the debt is forgiven, the debt no longer exists, no one pays it.

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Answered on 7/09/09, 8:39 pm

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