What Is A Chapter 7 Bankruptcy?
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership’s or corporation’s debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
Chapter 7 is the Bankruptcy Code’s liquidation chapter. It is sometimes referred to as “straight bankruptcy”. A Chapter 7 trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. Depending on the law of the State in which you file, you may be able to keep some of your personal and real property. If you have the ability to repay your debts, after taking into account reasonable and necessary living expenses, you may not qualify for relief under this chapter.
Under the federal bankruptcy statute, a discharge is a release of the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer required by law to pay any debts that are discharged. The discharge operates as a permanent order directed to the creditors of the debtor that they refrain from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts. Although a debtor is relieved of personal liability for all debts that are discharged, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.
A Chapter 7 bankruptcy is known as “straight” bankruptcy or “liquidation.” It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold by the Trustee to pay creditors. (Most consumer Chapter 7 bankruptcies are no-asset bankruptcies, which means there is no property available for sale over and above the exemptions.) Chapter 7 is considered a “fresh start.” It completely wipes out most unsecured debts. These are debts which don’t have any collateral. (For example, medical bills, most credit card debt, and deficiencies from repossessed automobiles and foreclosed real estate are unsecured debts.) Under Chapter 7, you must be able to keep up your regular payments on your secured debts if you want to keep the collateral. (Secured debts are debts that have collateral, such as your house or car.) If you cannot catch up and make your regular payments, you may decide to give the property back to the creditor. Then the debt becomes unsecu
Chapter 7 bankruptcy is a liquidation legal proceeding. Upon filing of the bankruptcy petition, the debtor turns over all non-exempt property to the court-appointed bankruptcy trustee, who then converts the property to cash to make a distribution to creditors. Generally, most assets held by the average debtor are considered to be non-exempt. In those cases, the trustee files a report of no distribution with the Court to indicate there will be no payment to the creditors. The debtor is required to attend a Section 341 hearing which is commonly called the first meeting of the creditors. The bankruptcy trustee presides at this hearing and the debtor is required to answer specific questions outlined in the U.S. Bankruptcy Code. Creditors of the debtor are allowed the opportunity to ask questions of the debtor regarding the statements and schedules filed by the debtor with the Court. Usually after 60 days from the date of the 341 hearing the debtor will receive a discharge which effectively
