Chapter 7 Bankruptcy
Chapter 7 is the Bankruptcy Code's "Liquidation" chapter. Chapter 7 Bankruptcy is also referred to as "straight bankruptcy" because it cancels out most of your debt. If you are an individual looking for a simple and inexpensive way to free yourself from debt, Chapter 7 Bankruptcy may be your best option. Chapter 7 Bankruptcy is also used by businesses that wish to liquidate and terminate their business. While filing for debt relief under Chapter 7 usually results in a discharge of debts, some debts are not dischargeable.
If you are considering filing Chapter 7 Bankruptcy, the most important fact you need to be aware of is that you are vulnerable to losing your property when filing under Chapter 7. A straight bankruptcy case does not involve proposing a repayment plan, like that required under Chapter 13 Bankruptcy, but instead requires the bankruptcy trustee to gather and sell the debtor's nonexempt assets. From the sale of the debtor's assets, creditors receive distributions according to the Bankruptcy Code.
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Who is Eligible for Chapter 7Bankruptcy?
Almost any person or entity is eligible to file a petition under Chapter 7 – individuals, couples, corporations, and partnerships. Chapter 7 allows relief regardless of the amount of the debt or whether the debtor is solvent or insolvent.
An individual may not file under Chapter 7, or any other chapter, if in the previous 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with the orders of the court or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
Under Chapter 7, a discharge of debts is not available to corporations or partnerships. Chapter 7 allows only individuals a discharge of debts. Also, once you have filed for Chapter 7 bankruptcy, you are not eligible to file again for six years.
What to Expect in Your Chapter 7 Bankruptcy Case
A Chapter 7 Bankruptcy case begins with the debtor filing a petition with the bankruptcy court. The debtor is responsible for filing several schedules of assets and liabilities, a schedule of current income and expenditures, a statement of financial affairs, as well a schedule of executory contracts and unexpired leases. An experienced bankruptcy attorney can help you file all of the necessary paperwork.
The "automatic stay" begins once the petition for bankruptcy has been filed. The automatic stay immediately stops almost all actions a creditor may take against a debtor. This usually prevents creditors from trying to collect what you owe them. Creditors may not initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payment.
A "meeting of creditors" is held no more than sixty days after the petition is filed. The debtor and the trustee are required to attend this meeting, however a creditor’s attendance is not required. Bankruptcy judges are prohibited from attending the meeting of the creditors. Throughout the meeting, the trustee orally questions the debtor to ensure that the debtor is aware of the potential consequences of filing for bankruptcy. These consequences include the effect on credit history, the ability to file for a different chapter of bankruptcy, the effect of receiving a discharge, and the effect of reaffirming a debt.
The Role of the Trustee
When you file for Chapter 7 Bankruptcy, an impartial "bankruptcy trustee" will be assigned to your case. Essentially, the trustee administers your case and liquidates your nonexempt assets. However, the majority of Chapter 7 cases are "no asset" cases, which means there is no distribution to unsecured creditors. The trustee is also responsible for processing the papers you file with the court as well as participating in the meeting of creditors.
If You Change Your Mind
Once you file a petition for Chapter 7 Bankruptcy you still have a few options available if your change your mind. A Chapter 7 Bankruptcy case may be transferred to either a Chapter 11 case or a Chapter 13 case. In order for this transfer to be approved, you must meet the eligibility standards for that particular chapter of bankruptcy and your case may not have previously been converted to Chapter 7 from either Chapter 11 or Chapter 13. You may also request that the court dismiss your case. Generally, a court will dismiss a Chapter 7 case as long as the dismissal will not harm the creditors.
Contact a bankruptcy lawyer in your area to find out more about filing for bankruptcy.