Chapter 7 bankruptcy is a type of bankruptcy that allows individuals or businesses to liquidate their assets to pay off their creditors. It is also known as a "straight bankruptcy" or a "liquidation bankruptcy."
The process of filing for Chapter 7 bankruptcy begins with the individual or business filing a petition with the bankruptcy court. This petition includes information such as the individual or business's income, expenses, assets, and liabilities. Once the petition is filed, an automatic stay goes into effect, which prohibits creditors from taking any further collection actions against the individual or business.
After the petition is filed, the court will appoint a trustee who is responsible for managing the individual or business's assets during the bankruptcy process. The trustee will sell any non-exempt assets, such as property or investments, to pay off the individual or business's creditors. Exempt assets, such as a primary residence, personal property, and tools of the trade, are usually protected from liquidation and can be kept by the individual or business.
After the assets are liquidated, the trustee will distribute the proceeds to the creditors according to the priority set out in the bankruptcy code. Secured creditors, such as mortgage lenders or car loan lenders, will be paid first, followed by unsecured creditors, such as credit card companies or medical bills. Any remaining debt will be discharged, meaning that the individual or business is no longer liable for it.
It's important to note that certain debts, such as taxes, student loans, and child support, are not dischargeable in Chapter 7 bankruptcy.
The entire process typically takes around four to six months from the date of filing the petition to the date of discharge.
Chapter 7 bankruptcy can be a useful option for individuals or businesses that are struggling with overwhelming debt and have few assets. However, it's important to keep in mind that it will have a negative impact on credit scores and it's a public record.
If you would like to see if you qualify for Chapter 7 bankruptcy, contact me and we can discuss your situation.
**None of the information provided here is intended as legal advice and no attorney-client relationship is formed between us until we have a formal written and signed agreement.**
