For debtors seeking an opportunity to emerge out of a financial crisis and start afresh, then Chapter 7 of the Bankruptcy Code is the way to achieve this end relatively faster. Under Chapter 7 of the Bankruptcy Code all non-exempt property of the debtor is sold and the proceeds of the same are distributed to the creditors. In most cases where Chapter 7 is brought into force the debtor has no assets to lose, therefore the fresh start takes place relatively faster.
Also known as liquidation (converting assets into money) or a straight bankruptcy, Chapter 7 is the most common form of bankruptcy filing. This type of bankruptcy filing accounts for as much as 65% of all Consumer Banking filings.
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 would be discharged. within months of the attorney filing a bankruptcy petition. A trustee is appointed who collects all non-exempt property, sells the assets and distributes proceeds from this sale to appropriate creditors. Chapter 7 is different from other bankruptcy filings because the debtor needs not make a payment to the trustee. Even though in some cases this would mean that you will lose all your assets, this need not always be the case. Under Chapter 7 Bankruptcy, the debtor receives a discharge on all dischargeable debts. There are 19 general classes of debt that are discharged under Chapter 7 Bankruptcy;
For individuals, some property is exempt from liquidation, meaning that the trustee cannot take it away. The individual may choose between federal or state exemptions (each state has different exemption rules). We will help you make that choice, depending upon your particular situation. Some common exemptions include a homestead, a car, certain personal property, a certain amount of cash, etc. Most individuals are able to exempt most, if not all of their property, meaning they do not lose anything in the bankruptcy process.
An added advantage with Chapter 7 is that by signing a reaffirmation agreement a debtor can continue to pay for a car loan or a mortgage on their home. This agreement is in place because as per the US Government Bankruptcy Code a debtor could be allowed to retain some or all of his property.
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 if in a debt situation would be better suited to file a Chapter 13. Also, any person who has been granted a Chapter 7 discharge (or completed a Chapter 13 plan) within the last 8 years, cannot file for a Chapter 7 plan.