Bankruptcy Fix Up

Explaining Bankruptcy Chapter 7 Rules

December 12th, 2007 Subscribe To Our Feed

You may have heard of the various chapters of bankruptcy law bandied around in the press when some high profile person is filing for bankruptcy but do you know what these terms actually mean ? Although nobody wants to be in such a position, it is important to understand the distinctions between the various chapters so that you can make an informed decision should it happen to you. This article will explain bankruptcy chapter 7 rules and some of the conditions that have to be met before a person can file chapter 7.

Certainly you want to avoid bankruptcy proceedings to the utmost as this will mean that you have debts that greatly exceed your net worth. It also means that you have no viable way of paying back these debts either. In this case you need to file for bankruptcy protection. This is a legal matter that requires a court to make a ruling on the case. Along with chapter 7 bankruptcy there is also chapter 11, chapter 12 and chapter 13. Each chapter addresses varying conditions of bankruptcy.

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 and other financial statements.

This is, of course, a brief overview and more detailed information is provided by the government and federal courts at the website uscourts.gov. However, trying to figure out Chapter 7 protection by yourself is not advised. Most people look to a lawyer to advise them one how to proceed. Although it may cost money to engage a lawyer this will ensure the process runs smoothly and is successful.

As far as individuals go, chapter 7 is a way to discharge of debts by liquidating any assets that you have. It is a way to start again but can only be applied every 7 years. This option should not be taken lightly as financial institutions take a dim view of chapter 7 bankrupts and it could prove harder to get loans and mortgages in the future.