What Is Chapter 7 Bankruptcy?
First of all we have to define this term: What is bankruptcy? Well, it is a very difficult word to say, because it means that you (or your organization) are unable to pay the creditors. Most probably you will hear about Chapter 7 Bankruptcy or Chapter 13 Bankruptcy because the six types of bankruptcy are known by the title of the Chapter of the Federal Bankruptcy Act in which they appear. Each "Chapter" contains a different set of laws and rules. Little by little we will define every single one of them, providing you a complete set of information on this subject. For the moment, let's take a closer look to the Chapter 7. Sometimes called a straight bankruptcy or " liquidation ", the Chapter 7 Bankruptcy is the most common form of bankruptcy in the United States. It involves canceling your debts, but you might also have to let the court sell (liquidate) some of your assets for the benefit of your creditors. The Chapter 7 Bankruptcy's aim is to give an opportunity for a debtor to emerge out of a financial crisis and have a fresh start.
By law, all actions against a debtor must cease immediately once the documents are filed. The facts that your creditors will stop harassing you as well as the cancellation of your debts are two important reasons to file bankruptcy. On the other way, you should be aware of what you can lose: by filing for bankruptcy, you are technically placing all the property you own as well as the debts you owe in the hands of the bankruptcy court (implying that you are not allowed to sell or give away any of the property you own when you file, or to pay off your debts, without the court's consent). During a court-supervised procedure a trustee collects the assets of yours (the debtor's) estate, reduces them to cash, and makes distributions to creditors, subject to the rights of secured creditors as well as the debtor's right to retain certain exempt property. Assets in excess of your allowed personal exemption or non exempt assets like automobiles, real estate, and boats will be liquidated by the trustee. Because there is usually little or no nonexempt property, in most of the cases of Chapter 7 bankruptcy, there may not be an actual liquidation of the debtor's assets. These cases are called "no-asset cases." Now, let's get a look of the practical actions required in order to file Chapter 7 bankruptcy. The process starts with the filing of the official petition, schedules and Statement of Financial Affairs with the bankruptcy court. In order to complete the Chapter 7 Bankruptcy Forms, you must provide information about the source, amount, and the frequency of your income; a list of all of your property; and a detailed list of your monthly living expenses as well as a list of all of your creditors and the amount and type of their claim. After that your creditors are prevented from trying to collect on your debts. Then trustee takes control of any property that isn't exempt. After selling it, the trustee pays the expenses of the administration of the case, and then gives any remaining money to creditors with allowed claims in accordance with the priority of the claims. Between 20 and 40 days after you file bankruptcy, the trustee will hold "341" meeting also called " the first meeting of creditors " in which you must take part. You may be asked questions under oath about your property and debts. After this meeting, your responsibility is to cooperate with the trustee in providing any requested information and the creditors have 60 days to convince the bankruptcy court you shouldn't be allowed to jettison your debts. Another important term during a Chapter 7 Bankruptcy is the "reaffirmation" of debts. This implies an agreement between you and a creditor that you will remain liable on a debt and will pay the remaining portion of the amount owed in order to keep a certain property (a car, for example), even though the debt could be discharged. If you decide to " reaffirm " a debt, you are required to file an agreement with the court disclosing that you were advised of the amount of the debt you are reaffirming and how it was calculated, and that you are aware that the debt will not be discharged; you are also obliged to indicate your income and expenses so that the court can see that there is sufficient money to pay the reaffirmed debt. Meanwhile, it is possible that the trustee reviews your income and expenses to see if you have some money left after your current living expenses to pay a certain amount to creditors. Finally, if creditors haven't filed a suit to stop you from getting out from under your debts in 60 days from the first meeting of creditors, the court will enter an order granting the "discharge" of all dischargeable debts that existed in the moment when the bankruptcy was filed. |
