Chapter 7 bankruptcy requires the debtor to liquidate some of his assets to repay outstanding debts. Thirty days after filing for Chapter 7 liquidation bankruptcy, the debtor must file a Statement of Intention with the court and other interested parties indicating whether he plans to sell or keep property such as a house or car. In contrast, a debtor who files for Chapter 13 bankruptcy is not required to submit a Statement of Intention since she will repay part of her debt through a court supervised repayment plan.
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The Statement of Intention gives notice to the debtor's creditors and the court-appointed trustee of whether the debtor wishes to surrender or retain any collateral securing a debt. Secured debt is any debt that is attached to property that the lender could repossess upon a default in payments. The most common types of secured debt is a home secured by a mortgage or a vehicle secured by a title loan.
Completing the Statement of Intention
In filling out the Statement of Intention form, the debtor must indicate the name of the creditor and a description of the property secured by the debt, such as a house address or vehicle make, model and vehicle identification number. The debtor must also indicate whether she is surrendering the property, wishes to keep it by redeeming the property or reaffirming the debt, or is attempting to avoid a lien.
One way to retain property under Chapter 7 is to redeem it. This process requires the debtor to pay the court-appointed trustee the sales price that the property would have sold for at auction. The trustee then uses the payment to compensate the secured creditors. This process applies only to personal property, such as furniture, vehicles or appliances, and not real estate. The property of a debtor's unincorporated business is also ineligible to be redeemed as it is not considered personal property.
Reaffirming the Debt
Debtors also have the option of reaffirming a secured debt rather than redeeming it. In reaffirming the debt, the debtor enters into another contract with the creditor setting new payment amounts and other terms. Since reaffirmed debts are not discharged at the end of the bankruptcy process, the lenders are able to sue the debtor if he does keep up with the new payments.
Claiming Exempt Property
The federal bankruptcy code may require the sale of some of the debtor's property in order to raise funds to pay debtors. However, Chapter 7 identifies certain types of property that are protected from mandatory sale. Exempt property includes personal use vehicles, non-luxury clothing, wedding and engagement rings, home furnishings, pension funds, Social Security income, household appliances and the debtor's work tools. As the federal bankruptcy law permits each state to define exemptions, the list of exempt property varies from state to state. If a debtor claims the secured property is exempt, then he must indicate it as exempt by checking the box on the Statement of Intention.
The Bankruptcy Code allows debtors to be released from some court-imposed liens through Chapter 7 proceedings. These liens include any monetary judgments against the debtor from a lawsuit, or any liens that are attached to exempt property, such as a home or exempt vehicle. To avoid the lien, the debtor must check the appropriate box on the Statement of Intention form. Not all liens are eligible for avoidance. For example, liens for failure to pay income tax or property tax or liens placed against property by building contractors are not avoidable in bankruptcy.
Property Subject to Unexpired Leases
Part B of the Statement of Intention requires the debtor to identify any property that she is leasing, such as a car or real estate. The form requires her to identify the lessor, the property being leased and what the debtor intends to do with the lease. The debtor may choose to maintain the lease, break the lease or assign it to another person.