What Is Chapter 7?
What is Chapter 7?
Bankruptcy is serious business, so you need to understand it clearly. Chapter 7 of Title 11 of the US Bankruptcy Code controls the process of liquidating assets. A bankruptcy trustee is appointed to liquidate non-exempt assets in order to pay creditors; once the product is exhausted, the remaining debt is discharged. There are eligibility requirements for filing Chapter 7, as the debtor must not have had any Chapter 7 bankruptcy discharged in the previous eight years and the applicant must pass a means test. This process is also known as “direct” or “liquidation” bankruptcy.sese
Key points to remember
- Chapter 7 bankruptcy allows the liquidation of assets to pay creditors.
- Senior unsecured debt is paid first in a Chapter 7, after which comes secured debt, and then unsecured non-priority debt.
- Filing for Chapter 7 usually involves filling out forms and an asset review by the trustee.
Understanding Chapter 7 on Bankruptcy
In Chapter 7 bankruptcy, the top priority rule states the order in which debts must be paid. Under this rule, unsecured debts are separated into classes or categories, with each class receiving payment priority. Secured debt is backed by debt or secured by collateral to reduce the risk associated with a loan, such as a mortgage.
Senior unsecured debts are paid first. Examples of senior unsecured debts are tax debts, child support, and personal injury claims against the debtor. The secured debts are then paid. The last is the payment of the non-priority and unsecured debt with the remaining funds from the liquidation of the assets. If there is not enough funds to pay the unsecured non-priority debt, the debts are paid on a pro rata basis.
The bankruptcy process consists of the following steps:
Tips and forms
Filers must first take credit counseling within six months of filing before starting the Chapter 7 bankruptcy process. If there is no licensed counseling agency in the district, they can opt out. at this stage. Other exceptions may apply depending on the debtor’s situation.
The applicant must complete several forms, including a court application, to begin the formal Chapter 7 process. The forms detail personal information, such as the debtor’s finances, creditors, assets, income, and expenses. After the petition is filed, an automatic stay is in effect which prevents creditors from collecting their debt. The stay also stops and prevents income garnishments.sese
Appointment of the trustee and meeting of creditors
The bankruptcy court will appoint an impartial trustee to oversee the entire bankruptcy process. They will examine the assets and determine which assets can be liquidated to pay off creditors. The trustee then organizes meetings with the creditors, during which the validity of the petition and the finances are confirmed. As the name suggests, the “meeting of creditors” allows them to meet with the trustee and the debtor to ask questions.sese
The bankruptcy trustee examines the personal property and finances of the debtor. Exempt property, or property necessary to maintain a basic standard of living, is retained by the debtor. Non-exempt assets are seized and liquidated to pay creditors. Property exemptions vary in each state. However, in many cases, debtors are allowed to keep their primary residence, personal effects and car. The trustee then supervises the liquidation of all other assets.sese
The CARES (Coronavirus Aid, Relief, and Economic Security) law, promulgated by the President on March 27, 2020, excludes coronavirus-related aids from the calculation of a debtor’s current monthly income for the period of one year in the event of bankruptcy In progress. case.sese
Clearance of remaining debt
Most debts are discharged under a Chapter 7 bankruptcy. The discharge of the debt releases the debtor from any personal liability for payment. Once a deficit is paid under Chapter 7, the creditor can no longer seek future restitution from the creditor. Obligations for alimony, child support, certain government debts, income tax and federal student loans cannot be discharged in bankruptcy. The law is very restrictive on the payment of amounts owed for income taxes and student loans. The United States Bankruptcy Code lists 19 categories of non-dischargeable debt.seIn most cases, depositors receive a discharge approximately two months after the meeting of creditors.
Bankruptcy certainly has negative consequences, which is why debtors should make sure it is suitable for them. Creditors can attempt to collect the debt after discharge, even if they are not entitled to it (so it is important to keep bankruptcy documents, as duplicates can be costly). The bankruptcy case will show up on credit reports for 10 years from the date of filing, severely affecting the debtor’s ability to obtain loans. Also, a person cannot file and receive a subsequent Chapter 7 discharge within eight years of a previous Chapter 7 discharge. It is important to be especially careful financially after going through Chapter 7.