What Is A Chapter 7 Bankruptcy?
Chapter 7 of the bankruptcy code is titled ‘liquidation.” Chapter 7 bankruptcy is available to individuals or businesses. The debtor’s goal in a Chapter 7 is to “discharge” his or her debts by giving up all non-exempt property. In a Chapter 7 bankruptcy case, a bankruptcy “trustee” is appointed. Typically, the bankruptcy trustee collects and sells all of the debtor’s nonexempt assets, then distributes the money to the creditors. A creditor with a valid lien will receive its collateral or the proceeds from its sale. An unsecured creditor with an allowed claim will receive its prorata share of the amount collected by the trustee. However, the bankruptcy code provides that certain creditors have priority and will be paid before other unsecured claims. In addition, not all claims are allowed.
Chapter 7 is a liquidation case, which discharges all the debtor’s debt, with some exceptions. A trustee of the court is appointed to liquidate the debtor’s property and to take the money and pay it to the creditors. The debtor is allowed to keep that property which falls under the limits provided by the North Carolina State Homestead Exemption. Creditors who hold liens on the debtor’s property continue to hold those liens, and will have to be paid or be permitted to repossess their collateral.
Chapter 7 is a liquidation of your assets that are not exempt under the Bankruptcy Code. The debtor turns over his non-exempt assets (if any) to a U.S. Bankruptcy Trustee. The trustee sells the assets and pays off your creditors. You receive a “discharge” if you comply with the orders and rules of court.
Chapter 7 cases are commonly referred to as straight bankruptcy or liquidation cases, and may be filed by an individual, corporation, or a partnership. A Chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in Chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. The Bankruptcy Code will allow the debtor to keep a certain amount of property called “exempt” property; however, potential debtors with valuable assets should realize that the filing of a petition under Chapter 7 may result in the loss of property.
