Chapter 7
Simply put: Chapter 7 of the United States Bankruptcy Code is a provision under Federal law designed to assist individuals and businesses who cannot repay their debts. When a person files a Chapter 7 bankruptcy, he or she is taking the initiative to reestablish control over their financial situation.
Bankruptcy requires full disclosure of assets, debts, and income. The debtor must provide comprehensive answers to questions that relate to the valuation of personal property and transfer of assets during certain defined periods prior to the filing of the petition.
Other than a means test, which is a screening process used by the courts to determine an individual’s eligibility for Chapter 7, there aren’t any specific requirements that must be met in order to file a Chapter 7 bankruptcy. If eligible, an individual must provide truthful, accurate, and complete information on a bankruptcy petition that includes a disclosure of the best approximation of the market value of his or her assets, income, and proper addresses for notification to creditors.
Chapter 7 provides a means to discharge your unsecured debts within a relatively short period of time while allowing you, in most instances, to keep assets such as your car and home. Chapter 7 bankruptcy can put an immediate halt to all collection activities. From repossessions to wage garnishments and harassing phone calls and mail, debt collectors and creditors must stop all attempts to collect a debt once you have filed for Chapter 7. Types of debt that are readily handled by the Chapter 7 process include:
- Credit card debt
- Medical debt
- Personal loans
A business that files a Chapter 7 bankruptcy petition turns over the control of the company to a trustee who is a fiduciary for creditors. The trustee then assists with every aspect of sale of any assets and pursuit of litigation to fund a distribution to the creditors through the Chapter 7 process. A business liquidation is known as a “walk away” while the business owners have a responsibility to assist and cooperate with the trustee to provide needed support and financial information about the company’s affairs.