Who Qualifies For Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is the most utilized bankruptcy petition among individual debtors, and primarily involves total liquidation of a debtor's non-exempt assets. The liquidation process is usually handled by a bankruptcy trustee who gathers and sells all of the debtor's non-exempt properties. Once sold, the trustee applies the liquidated proceeds as payments to creditors in accordance with the Bankruptcy Code provisions. There may be instances where part of the debtor's assets could be subject to mortgages and liens (pledged to other creditors). This will be sorted out by the bankruptcy trustee as 'exempt' property, and only liquidating the debtor's remaining properties. This bankruptcy provision may also result in the loss of property.
Who is eligible for Chapter 7 Bankruptcy?
Debtors must be an individual, corporation, partnership, or any other type of business entity. Debt relief is available regardless of the debt amounts owed or if the debtors are solvent or insolvent. However, an individual debtor cannot file for Chapter 7 bankruptcy if a petition has been dismissed in the duration of the preceding 180 days, as a result of a debtor's failure to comply with court orders, or in cases where the previous bankruptcy petition has been voluntarily dismissed by the debtor.
Moreover, a debtor must have undergone credit counseling from a reputable agency within 180 days prior to filing for bankruptcy. For emergency cases, exemptions are permitted, after the bankruptcy trustee has determined that there are no approved credit counseling agencies available on short notice. A debt management plan must be filed with the court if one is developed during credit counseling. Under this bankruptcy petition, only individuals are eligible for a 'discharge of debts.' Once a debtor is discharged from debts, he/she is no longer liable for it. However, not all debts are applicable for discharge and this does not discontinue a lien on property. How does Chapter 7 Bankruptcy Work? A debtor must file a bankruptcy petition with the court in the area where he/she lives or where a business or corporation is organized. The following schedules must be filed: (1) Assets and liabilities; (2) Current income and expenditures; (3) Financial Affairs Statement; and (4) Unexpired leases and executory contracts. Once the court assigns a bankruptcy trustee, a debtor must provide this trustee with a copy of tax transcripts or returns (most recent year including prior years not filed when the bankruptcy case began). If a debtor mostly has consumer debts, he/she must also file the following documents: (1) Credit counseling certificate; (2) Proof of payment from employers, received 60 days prior to filing; (3) Monthly net income statement and any projected increases and expenses after filing; and (4) A record of any interest which the debtor has in state qualified education accounts. This bankruptcy provision is best for those wanting to have a 'fresh start. Chapter 7 enables debtors to make debt payments and provides opportunities to finally wipe out all debts, giving them a chance to start all over again after losing valuable properties resulting from bankruptcy.
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