The term "Chapter 7 bankruptcy" is a term that is thrown about a great deal in the media, but clear and concise explanations of the term are usually not offered. Because of this, there is some confusion of what exactly chapter 7 bankruptcy actually is and this confusion sometimes leads to people making critical errors in judgment when the individual contemplates such a filing.
Certainly no one wants to become involved in bankruptcy proceedings. There is good reason for this. In order to enter bankruptcy proceedings, a person will have to have debts that greatly exceed his or her net worth and, in addition, have no visible or viable means of paying back the debts. When a person or corporation finds itself in such a position, there becomes the need to file for bankruptcy protection.
This is a legal situation and it requires the courts to rule in the matter. There are a number of different forms of bankruptcy such as chapter 11 bankruptcy and the more common chapter 7 bankruptcy. Since chapter 7 bankruptcy is more common for individuals, it is important that a detailed explanation of what chapter 7 bankruptcy actually is.
The Definition Of Chapter 7 Bankruptcy
According to the law and the United States court system, Chapter 7 bankruptcy refers to liquidation of assets that are not legally exempt from liquidation in order to pay off creditors and debtors. Chapter 7 is an option open to individuals, businesses, partnerships and corporations. There is, however, a special clause open to the individual within the framework of this chapter filing that is not available to the other entities. That special clause is known as a "discharge." What a discharge refers to is the freeing of the individual from certain debts.
Filing Chapter 7 Bankruptcy
On a baseline level, those filing for Chapter 7 must provide copies of tax returns; executed contracts and leases that have been expired; financial affairs statements; proof of assets and liabilities; and copies/schedules of current expenditures and income. For individuals there are additional items that must be provided to the court as well. These items include copies of credit counseling reports and repayment plan programs, employer payments and statements of income, interest payments on student loans, etc.
This is, of course, a brief overview and more detailed information is provided by the government and federal courts at the website uscourts. However, trying to figure out Chapter 7 protection by yourself is not advised and it would be far more prudent to seek the advice of a legal professional as well.
Chapter 7 Bankruptcy Taxes
Chapter 7 bankruptcy is one type of bankruptcy that is available for people to file under the Bankruptcy Code. This form of bankruptcy is not available to everyone. Only certain people can file this type of bankruptcy and only people in certain situations should someone file this type of bankruptcy.
Eligibility For Chapter 7 Bankruptcy
No everyone can file for Chapter 7 bankruptcy. It is only available to individuals and also businesses. If you want to file for Chapter 7, assets should be limited to those that can be claimed as exempt.
Usually, filing for Chapter 7 may be best of one has a lot of assets. However, the decision on whether you are able to file for Chapter 7 is up to the court.
The Process
The process of filing for bankruptcy involves a lot of steps. Firstly, you need to collect all information about your financial situation. Next you may be required to attend counseling which helps you to decide if filing bankruptcy is the best option.
You will then be able to start filing out the proper forms and filing them with the court. Over the next few months or so you will be required to attend court and plead your case. The court will then decide if your bankruptcy is granted or not.
As you can see, this is quite a long process. However, you do not need to worry because as long as you are still undergoing the process, you are protected from debt collection by creditors.
What are the Risks?
Bankruptcy is not a simple solution when you do not want to pay your debts. In fact, recent changes in the bankruptcy laws has made filing bankruptcy more difficult and in some cases impossible.
If you file for Chapter 7, you will be at risk of losing your assets. Well the bad news doesn't stop there. You are also going to end up with a damaged credit record. This is one of the worst things that can happen to you as it may not be easy for you to get loans and other forms of credit in the future.
It is a good thing there is Chapter 13. You can file a Chapter 13 instead of a Chapter 7 if your income is deemed to be more than the set amount. So how do you pay back the amount? Well, the court can decide a repayment plan for you!
So, there you have it! The important points of bankruptcy Chapter 7, one thing that you should remember; bankruptcy should not be seen as an easy way out to settle your debts and you will end up losing you assets. However, if you are serious about filing for Chapter 7, you should think about the result of filing for one.
Both Scott Goodman & Joe Macker are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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