What is Chapter 7 Bankruptcy?
When a person is unable to manage his finances and fails to pay off debts, filing bankruptcy is often the last resort. There are several forms of bankruptcy in the United States. However, this article will mainly focus on Chapter 7 Bankruptcy. What exactly is this Chapter 7 Bankruptcy? Why debtors utilize this process?
Chapter 7 Bankruptcy is the most familiar form of bankruptcy utilized by debtors in the United States. Using this process, a debtor liquidates all remaining assets. The funds collected from the asset liquidation goes to the creditors. In the end, the greater part of the debtor’s aggregate debt is discharged. This allows the debtors to start a new life. The great thing about this process is that not only individual entities may take advantage of it but also business entities.
Like any other forms of bankruptcy, the debtor needs to file necessary papers with bankruptcy court. The debtor is required to provide proofs his or her inability to pay off debts. Illegibility to file for repayment plan and reorganization along with the provision of the entire assets list is also required. The next step is all in the hands of the bankruptcy court. The entire information presented by the debtor will be reviewed.
If the information proves to be sufficient for a debtor to undergo liquidation bankruptcy, the court will call for a creditor meeting. The court provides the schedule when both debtor and creditor talk about the remaining assets for liquidation. Typically, creditors will allow debtors for a partial debt repayment. However, creditors have also the right to decline debt cancellation if there are proofs that the debt is related to unlawful or deceitful activities. Moreover, there are particular forms of debts, which are not allowed to be written off under the rules of chapter 7 bankruptcy. One good example of debt that is not allowed to be erased is the student loan.
The chapter 7 bankruptcy may take some time to materialize. Typically, the proceedings take four to six months. A debtor may choose to file the bankruptcy independently or hire a bankruptcy attorney. Whatever the case is, creditors has the power to determine what assets can be sold or not. Creditors have the power to declare which assets are worthless. Assets deemed worthless are ruled exempt. On the other hand, selling of assets is handled by a trustee. A trustee is a third party entity, which will do its best to sell the assets for the highest price possible. The use of a trustee averts conflict of interest for both creditor and debtor.
Although filing chapter 7 bankruptcy may help a debtor start a new life, it has also some drawbacks. Filing for the process will require debtors to consent on attending credit counseling. Applying for credit will also be more difficult and it may take several years before a debtor can easily get new credit application. Moreover, filing for another bankruptcy is impossible for over a definite time. On the other hand, attending credit counseling may help people in credit rebuilding after successfully filing for bankruptcy.