Chapter 7 Bankruptcy
Under the Bankruptcy Code, chapter 7 is a bankruptcy option available to both individuals and businesses on filing a petition and all necessary declarations related to the debtor’s assets and income. There are costs amounting to some hundreds of dollars associated with filing the petition. However, payment through installments can be arranged, allowing the debtor to extend payment up to 180 days. Chapter 7 is usually, though not exclusively, a voluntary option.
A precursor to filing a bankruptcy petition as an individual is credit counseling from a credit counseling agency that is operating with the appropriate approval. This counseling must have occurred within 180 days of filing the petition. In the event of the creation of a plan to manage the debt, this plan must be made available when filing the required documentation with the court.
Chapter 7 provides instant relief to the debtor through putting a stop for a time to any actions on the part of the creditors to recover debt. In addition, filing a chapter 7 leads to assets being classed as exempt and nonexempt. Those classed as exempt, such as mortgaged property, are not part of the liquidation process under chapter 7 being secured by other creditors.
As chapter 7 facilitates the liquidation of assets according to a prescribed hierarchy in order to ensure the best return to unsecured creditors, filing a petition presupposes that the debtor will relinquish estate assets not protected by exemptions, including property. While individuals can anticipate having some or all of their debts discharged, a measure which enables them to resume their lives, this is not available for businesses involving partnerships or corporations. Naturally, existing commitments such as mortgages on property are not able to be discharged.
Under chapter 7, a bankruptcy trustee will be assigned to handle the disposal of nonexempt assets in order to realize the claims of creditors. These nonexempt assets may be money or property which is free of liens and able to be sold.
The bankruptcy trustee arranges a meeting with the creditors identified by the debtor that the debtor is obliged to attend. At this meeting the debtor will be subjected to questioning from both the creditors and the trustee. In the case of the creditors, the questions will likely pertain to financial concerns, such as the debtor’s assets. The trustee, however, will be concerned to clarify legal matters relevant to making a full disclosure to the court in order to facilitate the discharge of debts.
If proof can be offered to the court that the debtor has sufficient income, the debtor may opt for reaffirmation of a specific debt, before discharge. In this case, there is an arrangement made between the debtor and creditor to manage the debt that allows the debtor to retain possession of the property and restructure payments.
Also, in the case of individual debtors, assuming there is no failure to disclose information or mislead the court, the majority of debtors can expect to receive a discharge of some or all of their debts. Chapter 7 is suitable for dealing with consumer debt.