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How are creditors paid off in a Chapter 7 bankruptcy?

Many Colorado residents struggling with financial problems may be eager to find a solution for debt relief. Chapter 7 bankruptcy may be the solution for these individuals.

It is important for individuals to understand the process that occurs when filing for Chapter 7. At the outset of the case, the debtor usually files a schedule of assets and liabilities, as well as a statement of the person's income and financial affairs.

After a Chapter 7 petition is filed, a trustee is typically appointed to handle the person's estate. The trustee will be tasked with liquidating the debtor's assets to pay off creditors and discharge debt.

In certain cases, there may be questions regarding a person's assets and whether certain assets may be sold to pay off debts of creditors. For example, in the Chapter 7 bankruptcy of Casey Anthony, the mother who was acquitted of killing her daughter, the parties are arguing about whether Anthony's life story constitutes an asset for purposes of the bankruptcy estate.

The trustee in Anthony's case considers the life story to be as asset, similar to any other asset that might be sold off to earn money. Accordingly, the trustee is attempting to be able to sell off the rights to the story to pay off creditors. Anthony is resisting the move, arguing the story is a matter of privacy and First Amendment expression. It remains to be decided how the court will rule on the issue.

Of course, most debtors do not have much in the way of an asset from a life story that could be sold off. Most individuals do have property that will be part of the bankruptcy estate, however, including all legal or equitable interests a person has at the start of a bankruptcy case. Certain property is exempt from being sold off, and thus it is essential to work with a qualified bankruptcy attorney to determine what property is exempt and what property may be sold off to pay off creditors.

Source: Los Angeles Times, "Casey Anthony asks bankruptcy court to block sale of life story," Michael Mello, April 6, 2013

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