What is Chapter 7 bankruptcy and who is eligible?

What is Chapter 7 bankruptcy and who is eligible?

While bankruptcy as a term is well-known in Arizona, many are not fully aware of the different kinds available. Add in that the idea of avoiding one's debts is one of the stigmas surrounding bankruptcy and it's no wonder that many are not even cognizant of which bankruptcy to choose and who would be eligible. This is why it's important to understand the basics of Chapter 7 bankruptcy.

Those who complete a successful filing for Chapter 7 will not be subject to having to file a repayment plan as there would be in other forms of bankruptcy. With Chapter 7, the bankruptcy trustee will gather and sell the nonexempt assets the debtor holds. The proceeds of the sale will be used to pay the creditors based on the Bankruptcy Code. There might be properties that will be subjected to liens and mortgages and these will be pledged to other creditors. The debtor will be allowed to retain properties that are exempt. Apart from that, there will be a liquidation of the other assets. Debtors who believe filing for Chapter 7 will prevent the loss of all property are mistaken.

Individuals, partnerships and corporations can file for Chapter 7. Those attempting to file for Chapter 7 cannot do so if they have had a petition of bankruptcy dismissed in the previous six months. The dismissal must be due to the debtor willfully failing to appear in court, for failing to comply with court orders, or for a voluntary dismissal. In addition, a person who is filing must have credit counseling from an approved agency. The main goal of Chapter 7 is to provide those struggling with debt an opportunity to restart their financial lives. Once the debts have been discharged, there is no longer any liability. The discharge is an option for individuals in a Chapter 7. Partnerships and corporations cannot receive a discharge.

It is not a guarantee that the debts will be discharged. Certain debts will not be discharged. When there is a bankruptcy discharge, it will not end a lien that has been placed on the debtor's property. Those who are facing financial issues and are considering bankruptcy need to know which form is right for them. A Chapter 7 bankruptcy might be the preferable choice. To have a full grasp of what is the best option, it is wise to discuss the matter with an experienced attorney.

Source: uscourts.gov, "Chapter 7 Bankruptcy Basics," accessed on Sept. 24, 2015

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