Chapter 7 comes under Title 11 of the code of US Bankruptcy. This is meant to control the procedure of asset liquidation. The court appoints a trustee to liquidate an individuals’ nonexempt assets to pay off the debtors.
Even after liquidating all the assets, if the debt is still not paid off and the proceeds are exhausted, the rest of the debts are discharged by the US court.
In order to file Chapter 7, there are some eligibility requirements, like the debtor being filed must not have a Chapter 7 Bankruptcy discharged in the last eight years, and the one applying is necessarily required to pass a means test.
In the case of a borrower filing for Chapter 7 bankruptcy, they are required to inform the US court first. The court should know of all and any debt or liability in the form of returned checks.
If a debtor has a returned check, also known as bad checks, it represents that they have an unpaid debt. If there is an outstanding debt, they are eligible for discharge unless the creditor proves fraud on the part of the debtor.
A Quick Overview of Chapter 7 Bankruptcy:
Soon after Chapter 7 bankruptcy is filed, the court will assign a bankruptcy trustee to the case.
The bankruptcy trustee is going to be responsible for the liquidation of assets and distribution of funds to the creditors, and they and they must be informed of all the nonexempt assets. If there are still unpaid debts after liquidating all the assets, those debts will be discharged by the trustee. Having a bankruptcy discharge, the debtor will be free of paying all the remaining debts. The debtor will no longer be liable to pay any debts to the filer.
Discharge of Bankruptcy and Returned Checks:
Sometimes, there is an issue of a consumer writing check which is later on returned unpaid or bounced.
In Chapter 7 bankruptcy, these kinds of unpaid checks and debts can be discharged as well. If an unpaid check is incorporated in a bankruptcy case, the one who received a check as payment becomes the creditor.
The only way debt can not be discharged is if the creditor makes a special request to the court known as an objection to discharge.
If the court approves the request to designate the check debt non-dischargeable, the bankruptcy filer would still be liable for the amount after receiving their bankruptcy discharge.
A lot of times, the court will only approve this type of creditor request if they can prove that the check one who filed for bankruptcy intentionally wrote a bad check. Most of the time, this means that the check was written against a closed checking account.
With that being said, not a lot of NSF checks meet this requirement.
It is highly common that debtors are usually afraid to file for bankruptcy because they have a payday loan whereby the auto-debit payment to the payday lender bounces. Auto debit related NSFs should not create a dischargeabilty problem. Furthermore, payday lenders with their exorbitant rates are wary of coming into bankruptcy court at least in Maryland.
As according to state law, these checks are excluded from being considered as fraudulent as NSF checks.
If you have other questions about what types of debt can be discharged in bankruptcy or you need help filing bankruptcy, please don’t hesitate to get in touch. You are in good hands with Githuku Law. Our number is 410-849-9529.
