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Chapter 7 Bankruptcy
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Liquidation of Assets


Bankruptcy is a federal court process used to discharge debt, when an individual or business is insolvent. Through court action property is turned over to a trustee who handles payments to creditors.

In the United States, Chapter 7 is one of six separate types of bankruptcy defined under Title 11, of the U. S. Bankruptcy Code.;/p;

Chapter 7 is the most common type of bankruptcy, often referred to as liquidation, meaning assets are liquidated to cover debts. Statues define which assets will be liquidated and which, if any, assets are exempt from liquidation. In a Chapter 7 bankruptcy, the debtor selects property he is eligible to keep from a list of state exemptions. An appointed trustee handles the liquidation sale of assets and money transfer to creditors.

Typically Chapter 7 Bankruptcy is chosen, when there are few assets and credit card debt and other unsecured bills are involved. Filing a Chapter 7 bankruptcy may eliminate all debts, however, there are certain debts, which are not eliminated, including:

  • IRS debt
  • Alimony
  • Child support
  • Student loans from government organizations
  • Fines and penalties for law violations, such as traffic tickets and citations
  • Debts for personal injury or death caused by driving while intoxicated
  • Any debts not listed when filing for bankruptcy, unless the creditor learns about your bankruptcy case.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made significant changes in filing for bankruptcy. Prior to the new law, anyone could file for a Chapter 7 bankruptcy. Now, your income, which may not be higher than the median income for your state, determines whether you can file for a Chapter 7 bankruptcy.

Additionally, under the 2005 law amending bankruptcy, debtors must undergo bankruptcy credit counseling with counselors approved by the U.S. Trustee’s office before filing for Chapter 7. And, provisions of the new law require more stringent proof of debt and documentation, as well as other requirements make filing for bankruptcy more difficult and time-consuming for the debtor and his attorney.

Seeking legal advice is essential, if you feel bankruptcy is the only answer to resolving your financial difficulties. An attorney can evaluate your situation, recommend the form of bankruptcy most beneficial for you, and help you navigate the complicated requirements of filing for bankruptcy.


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