In return for having debts discharged, the debtor turns over to a bankruptcy trustee certain non-exempt property, including assets acquired by inheritance, family law and insurance in the 180 day period following bankruptcy. This non exempt property is then sold, with the proceeds distributed to creditors according to priorities established by law. Certain types of debts may not be affected by bankruptcy. These debts include some taxes, claims of creditors who are not notified, spousal and child support, fines, certain student loans and damages caused by drunken driving. In addition, certain abuses of cash advances and credit cards on the eve of bankruptcy are non dischargeable.
State laws allow a debtor to keep some items called exempt property.
The Federal Bankruptcy Code also sets forth a list of broad exemptions which may or may not be permitted in each state in lieu of state exemptions. Exemption statutes are very complicated. One must compare one's assets to available exemptions to determine what can be retained. In general, and within certain dollar limits, a debtor is allowed to keep equity in personal effects, household goods, a car, a house, and similar necessities. A trustee handles most payments and administers income tax refunds according to the approved plan.