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7 Explained
Chapter 7 Bankruptcy
If you are planning on filing for Chapter 7 Bankruptcy here is some information you should consider before you file the claim. Filing for bankruptcy is a huge decision and will remain with you for the next 7 years after the case is disposed of in the courts.
Alternatives to Chapter 7
Those about to file bankruptcy should consider that there are other alternatives available. If you are in a partnership, sole proprietorship or corporation and you would like to stay in business it is possible to make arrangements where your debt is reduced, stretched out over longer periods of time, or in some cases even postponed until you are more able to pay.
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
Background
A chapter 7 bankruptcy case does not require a repayment plan to be filed. Basically what happens is a trustee from the courts will gather up all your non-exempt assets and liquidate them in order to pay your creditors. There are cases in which property is subject to liens for future repayment and all debtors should be aware that the loss of property is possible.
Can I File?
To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual a new start. The debtor has no liability for discharged debts.
In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
How Chapter 7 Works
A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets.
In addition to the petition, the debtor must also file with the court:
- schedules of assets and liabilities
- a schedule of current income and expenditures
- a statement of financial affairs
- a schedule of executory contracts and unexpired leases.
Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:
- A list of all creditors and the amount and nature of their claims.
- The source, amount, and frequency of the debtor's income;
- A list of all of the debtor's property; and
- A detailed list of the debtor's monthly living expenses, i.e.,
food, clothing, shelter, utilities, taxes, transportation, medicine,
etc.
As you can see, filing for Chapter 7 is a long and difficult process which requires many hours of paperwork and filing of documents. Sometimes this is not always the best alternative to pursue. Credit counseling services are another way to get out from under your debt without the filing of a Chapter 7 Bankruptcy.