What Is Chapter 7 Bankruptcy?

If filing for bankruptcy is an opportunity for a debtor to emerge out of a financial crisis and start afresh, then Chapter 7 of the Bankruptcy Code is the way to achieve this end. Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds are distributed to the creditors. In most cases where Chapter 7 is brought into force the debtor has no assets to lose.

How Can I Be Sure Chapter 7 is Best for Me?

Also known as liquidation (converting assets into money) or a straight bankruptcy, Chapter 7 Bankruptcy is the most common form of bankruptcy filing. This type of bankruptcy filing accounts for as much as 65% of all consumer bankruptcies. As mentioned before, this is one of the faster ways of starting afresh, and more so if there are no objections from any of the parties involved. Ordinarily, most (if not all) debts will be discharged within months of filing a bankruptcy petition.

How Does Chapter 7 Bankruptcy Work?

A trustee is appointed to collect all non-exempt property, sell the assets and distribute proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor need not make any payments to the trustee. Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts. There are 19 general classes of debt, such as child support, most taxes and student loans that are not discharged under Chapter 7 Bankruptcy. An added advantage with Chapter 7 bankruptcy is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home.

Who Cannot Or Should Not File For A Chapter 7 Bankruptcy?

Debtors engaged in business would usually not like the prospects of liquidation and Chapter 11 might be a better option for such individuals associated with corporations and partnerships. Also, individuals with regular income may be better suited to file a Chapter 13 bankruptcy. Additionally, any person who has been granted a Chapter 7 discharge (or completed a Chapter 13 plan) within the last 8 years, cannot file a Chapter 7 bankruptcy.