What is Chapter 7?
What is Chapter 7?
- Chapter 7 is usually referred to as a “liquidation” of assets or “straight bankruptcy”.
- Chapter 7 is a court-supervised procedure in which the assets of the debtor is converted to cash (liquidated) and distributed by a trustee to the creditors.
- Exemptions are made for certain types of property. For example, used household goods and personal effects are typically exempt as they typically have low resale value and would not be easily liquidated.
- Most Chapter 7 cases everything is considered exempt as the debtor has no significant nonexempt property and there are few assets to liquidate. This is referred to as a “no-asset case”.
- If a debtor has significant assets to maintain and protect, they can discuss this with a bankruptcy attorney and possibly opt to file Chapter 13.
- Debtors can attempt to convert nonexempt property and their value into an exempt value, however, this takes careful planning as courts can look at this as attempting to defraud the creditors and this can negatively impact the debtor’s ability to obtain a discharge.
- Most Chapter 7 cases leads to a discharge for the debtor that releases them from any personal liability for certain dischargeable debts. Some exemptions to the discharge can include child support, student loans and criminal fines and/or restitution.
- Typically a discharge is received within about 90-120 days after filing the Chapter 7 petition. Some exemptions to the discharge can include child support, student loans and criminal fines and/or restitution.
- Chapter 7 can also be filed by a business which then ceases operations and a trustee sells all of its assets and distributes the proceeds to its creditors.
- Discuss your Chapter 7 options with a bankruptcy attorney. Some states have different definitions of exempt and nonexempt property, for example, so legal counsel is important.
- Filing Chapter 7 will impact your credit, your ability to obtain loans (and certainly loans with advantageous interest rates) and even future employers will be informed when they include credit checks in the background check they perform for potential employees.
Remember, these are generalities about Chapter 7 Bankruptcy. Contact a bankruptcy attorney in your area for more specific information. Furthermore, some states have bankruptcy laws that differ from federal laws that you need to be aware of to ensure that you make a sound, informed decision about how to best deal with your debt and your financial future. There are alternatives to bankruptcy, and it is possible to reduce and consolidate your debt without declaring bankruptcy.
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