In Chapter 7, or straight bankruptcy, the debtor is unable to repay debts and most, if not all, debts are canceled. To pay creditors, the debtor’s nonexempt property is sold by a court-appointed trustee who pays creditors with the money from the sale of these nonexempt assets. The debts remaining are discharged or canceled at the conclusion of the case. For individuals, much or all of their property may be exempt from sale by the trustee. Exempt property, therefore, is protected from your creditors. A certain dollar value of a car, a home, household furnishings, clothing, tools of trade is exempt and cannot be sold to pay creditors. When the bankruptcy case is over (often in a few months), the debtor receives a discharge canceling most debts listed in the schedules.

The debtor has several responsibilities in addition to completing the documents to be filed with the court. The debtor must attend required hearings and cooperate with the trustee in administering the estate. The trustee’s main job is to gather all nonexempt property and sell it to pay creditors. Not only do trustees have the power to take possession of nonexempt property, they may also, in certain situations, recover money or property transferred to creditors, relatives or friends before the debtor filed the bankruptcy petition. Most straight bankruptcy petitions are called “noasset” cases because there is no property to sell to generate funds for creditors. Generally, once the trustee determines that the case is a no-asset case, the proceeding will be closed shortly after the debtor is granted a discharge. A creditor is designated a secured creditor if the debtor has pledged property as collateral. For example, if a debtor purchases furniture or a home through monthly installments, the item being purchased is security or collateral for the installments yet to be paid. The lien held by the secured creditor on the property usually remains intact throughout the proceeding even though the money obligation is eventually canceled. If a valid secured claim is not paid or arrangements are not made to pay the debt, the secured creditor may bring an action to repossess the collateral. In certain limited situations the lien of a secured creditor may be avoided in its entirety. An unsecured creditor is one whose claim is not secured by any property. Examples include an open account with a store, a bank card account or medical bills. In the bankruptcy proceeding not all claims are discharged. Exceptions include money owed for certain taxes and student loans, fraudulent debts, child support, alimony and governmental fines. A debtor's obligations arising out of the equitable distribution of marital property may also be excepted from discharge. A U.S. Bankruptcy Judge presides throughout the bankruptcy proceeding. The judge makes rulings on disputed issues. For example, the judge determines whether a claim is secured or unsecured, or whether a creditor is entitled to repossess its collateral. However, most straight bankruptcy cases are handled routinely, and such questions rarely arise. When someone files for bankruptcy, the clerk of court schedules a meeting of creditors. The debtor and all creditors are notified of the meeting of creditors. The trustee is appointed to administer the case and conduct the meeting.

The meeting of creditors is usually held at a nearby federal courthouse. The trustee reviews the petition, schedules and statement of financial affairs and asks questions about the debtor’s assets. The creditors are also allowed to ask the debtor questions. After the meeting of creditors, the trustee arranges the sale of any nonexempt property. After the sales and completion of other administrative duties, the trustee prepares a report to the court, and with the court's approval, distributes funds to the creditors. Debtors cannot receive a discharge if they have received a discharge within the preceding six years.

Rather than seeking an immediate discharge of debts, a Chapter 13 debtor pays part of his or her future income to a Chapter 13 trustee. The trustee distributes these funds to the creditors over a period of time until the debts are satisfied according to the Chapter 13 plan or until the plan is dismissed. The plan may provide for repayment of all or a portion of debts, depending on the circumstances. During the Chapter 13 proceeding, the creditors cannot attempt to collect their debts unless permission is given by the Bankruptcy Court. Chapter 13 provides a more comprehensive discharge than under Chapter 7. In some cases, people choose to file a Chapter 13 rather than a Chapter 7 because they can protect more of their property under Chapter 13.

Filed with the Chapter 13 petition, schedules and statement of financial affairs are a statement of the debtor’s income and a plan to pay the creditors from the money sent every month to the Chapter 13 trustee. The plan must meet certain legal guidelines to be approved by the Bankruptcy Court. If you file a Chapter 13 bankruptcy, a trustee will be appointed by the court to administer your case. The creditors listed on the schedules are notified that you have filed for a Chapter 13 bankruptcy. They are alsofile a claim before the first meeting of creditors in order to ensure the classification as “secured.” An unsecured creditor must file a claim within approximately three months after the first meeting of creditors. A "proof of claim" is a form provided by the court and mailed to creditors with the notice of the meeting of creditors. The proof claim may be filed with the court or the Chapter 13 trustee. The Bankruptcy Judge resolves any issues which may arise while the case is pending. For example, a creditor may ask for permission to foreclose the property pledged on a debt which is not being paid through the Chapter 13 plan. When a petition is filed, the clerk of court schedules a meeting of creditors which the debtor must attend. At that meeting, the trustee reviews the petition, schedules, statement of financial affairs and plan and explains the plan to the creditors attending.

The creditors may inquire about the location of their collateral or how their claim is to be paid within the Chapter 13 plan. The plan is sent to the judge to review and confirm. The trustee then disburses funds each month to the debtor’s creditors as set out in the plan. For a plan to be confirmed, the plan must provide for paying back child support and certain taxes in full. If the debtor fails to make his monthly payments to the Chapter 13 trustee, the bankruptcy case may be dismissed by the court upon the request of the trustee or any creditor. Also, while the Chapter 13 plan is pending, the debtor may convert to a Chapter 7 straight bankruptcy or voluntarily dismiss the case. When the Chapter 13 plan is successfully completed, the debts listed on the original petition are discharged. As in the Chapter 7 bankruptcy, certain long-term debts, child support, maintenance, alimony and student loans are not dischargeable in Chapter 13, but some other debts which are not dischargeable in Chapter 7 may be discharged in Chapter 13.