About Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the process of paying your pending debts by selling your assets. Business owners and individuals can complete the filing process. This type of bankruptcy will relieve the person of any collections posed by agencies. Chapter 7 can reconstruct bad credit and give a person a fresh start with their finances.
Significance
A Chapter 7 bankruptcy is for individuals, partnerships, corporations and other types of businesses. It allows them to eliminate debt without worrying about repayment of the debt. This type of bankruptcy allows the debtor to rebuild credit. The case is assigned to a trustee of the court after the debtor files. The trustee examines all debts, assets and relays those reports to the court.
Function
When a debtor files for Chapter 7 they must complete a petition to the court that list all assets, amounts they owe, income, expenses and financial affairs. The petition will also contain any contract and current lease. People who have a large amount of credit card and personal debt must consult with a credit-counseling agency. This will help the court determine if the debtor qualifies for the Chapter 7. They may find that the credit counseling is a better choice than bankruptcy.
Benefits
An automatic stay is placed on the petition if the court approves the debtor. The automatic stay will prevent the collectors from collecting any debts from the debtor, which means they do not have to pay back any debts. This also means that the collectors cannot sue, call or garnish any wages. Liabilities approved by the court will never have to be paid back under Chapter 7.
Considerations
The Bankruptcy code passed on October 17, 2005 makes it harder to file Chapter 7 and also makes it more expensive to file. Debtors are forced to file for Chapter 13 or Chapter 11 payment plans to repay their debts. It is harder to file because people have to go through the means test, take credit counseling and pay enormous fees. It is a drawn out process to get qualified for Chapter 7. Even after the process of being qualified, you may end up being disqualified and find other alternatives.
Misconceptions
Debtors do not have to pay debts that are approved by the court in Chapter 7. The debtor's assets such as home, property or car may be sold to pay creditors. However, there are some assets that are protected under Chapter 7. Some people are not aware that a certain amount of their assets is totally protected under Chapter 7. After the court reviews the application, they will approve certain assets and allow the debtor to keep them. Liens on property are not removed and must be repaid.