The economic downturn and the effects of subprime mortgage practices have sent many to the brink of financial disaster. With foreclosure looming, bankruptcy remains a viable option for some debtors to keep significant assets while getting a clean slate.

Automatic Stay

Those who file for protection under the Bankruptcy Code gain the advantage of an automatic stay, so named because it takes effect immediately upon filing and it puts a hold on collection actions. Creditors must suspend efforts to collect debts unless they seek and are granted relief from the automatic stay. The automatic stay applies to all collection actions, including actions to repossess vehicles, furniture or other assets, and actions to foreclose home mortgages.

No-Asset Filing

In a Chapter 7 bankruptcy, the debtor is allowed to keep property that is exempted from the bankruptcy estate. For example, some or all of the debtor's equity in one vehicle and the homestead may be exempt. Property that is subject to an enforceable lien will be returned to the secured creditor or in some cases, the debtor may wish to reaffirm the debt and keep the property.

In most Chapter 7 bankruptcies, once the exempt property and collateral for secured debts is removed, there is nothing of monetary value left in the bankruptcy estate. In these cases, the bankruptcy trustee files a no-asset report with the court and there are no assets to be sold and therefore no distributions to unsecured creditors. Unsecured creditors are not required to file proofs of claim in a no-asset bankruptcy.

Even though there is no distribution to unsecured creditors in a no-asset case, the dischargeable debts will still be discharged in a Chapter 7 bankruptcy. The debtor will be allowed to keep exempt assets and still get a fresh start. When faced with a financially debilitating job loss, accident or divorce speak with an experienced bankruptcy attorney about bankruptcy options and alternatives.