Law Essay: Chapter 7 Bankruptcy
Last modified: March 18, 2017
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Chapter 7 Bankruptcy is also known as “Liquidation under the Bankruptcy Code”. This is because this Chapter 7 of the Bankruptcy Code provides for the “liquidation” of the debtor’s assets. This means that there would be a sale of a debtor’s non-exempt property. The proceeds of the sale would be distributed to the creditors according to the amount that was due to them.
By making use of Chapter 7 bankruptcy, the bankruptcy trustee is able to cancel most the debts incurred by the debtor. The debtor is free from the worry of having to pay back the debts. But, this also means the selling or liquidating some of his property to pay his creditors. The debts that cannot be erased by the Chapter 7 Bankruptcy include: child support, student loans and tax dues.
Let us explore some questions regarding: who is eligible to file for this form of bankruptcy, how the process works, and what happens to the property and debts. But a word of caution: Chapter 7 Bankruptcy costs in time and money, the time anywhere from four to six months. The costs of filing are about $300 in fees, not including the credit counselling by an approved agency.
Chapter 7 Bankruptcy cannot be filed if the person has already got a bankruptcy discharge within the last six to eight years. The income evaluation should also show that the person would not be able to repay the debt from this income.
Filing for Chapter 7 Bankruptcy would automatically prevent the creditors from taking hold of the debtor’s income or assets. Additionally, they cannot cut off the utility services or welfare benefits either. The bankruptcy court would take over the complete charge of the property and assets until the sale and disbursement of debts. A bankruptcy trustee appointed by the court would oversee the sale and payment to the creditors. The Chapter 7 Bankruptcy trustee and his staff would normally look over the papers of the debtor and identify the non-exempt assets that can be safely liquidated for repaying the debts. Many times they find that there is hardly any asset that is valuable enough to sell.
Then bankruptcy trustee holds a meeting with the creditors also being present and the case is thoroughly investigated and the trustee finds out what is owed to each of the creditors. The trustee then decides whether the non-exempt assets are valuable enough to sell easily without being very cumbersome. If they are not, then the property is abandoned and is not sold and the debtor gets to retain them. However, if they are valuable enough to sell, then the debtor has to hand over these assets to the trustee. Once the process is completed the debts are completely erased, whether or not the creditors were able to realise any of the amount owed to them through the sale of assets.
Many times, a property or asset, such as a vehicle or a building, was earlier pledged for a collateral loan. This is also called a secured debt. The debtor may be unable to keep up with the payments for such assets. Then, the stay preventing the creditor from repossession would be lifted. The creditor would be allowed to foreclose on the property. But if the payments have not been defaulted, the debtor can keep the asset.
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