Chapter 7 Bankruptcy

Chapter 7 Bankruptcy

The attorneys at TTMLAW have extensive experience handling complex chapter 7, chapter 13 and small business/individual chapter 11 proceedings. At TT&M LAW, we can provide the advice you need to make informed, responsible decisions about your financial future. We will analyze your debt relief options and give you an accurate assessment of what you should do, and whether bankruptcy or a non-bankruptcy restructuring workout is in your best interests.

Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States. (In contrast, Chapters 11 and 13 govern the process of reorganization of a debtor in bankruptcy.) Chapter 7 is the most common form of bankruptcy in the United States.

An individual who is badly in debt can file for bankruptcy either under Chapter 7 (liquidation, or straight bankruptcy), under Chapter 13 (reorganization), Chapter 12 (family farmer reorganization), or under Chapter 11 (reorganization of a company, or an individual debtor whose unsecured debt exceeds $ 383,175.00 and/or whose secured debt exceeds $ $1,149,525).

Debtors may also be forced into bankruptcy by creditors in the case of an involuntary bankruptcy, but only under Chapters 7 or 11. However, in most instances the debtor may choose under which chapter to file. The debtor may also choose to convert to another chapter from a 7 or 11 when forced into an involuntary bankruptcy.

Chapter 7 for Individuals

Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 (“straight bankruptcy”, or liquidation) Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances.

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens, however (such as real estate mortgages and security interests for car loans), survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold (liquidated) by the  trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Common exceptions to discharge include child support, income taxes less than 3 years old and student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Spousal support is likewise not covered by a bankruptcy filing nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.

Chapter 7 for Companies/Businesses

When a troubled business is badly in debt and unable to service that debt or pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7. A Chapter 7 filing means that the business ceases operations unless continued by the Chapter 7 Trustee. A Chapter 7 Trustee is appointed almost immediately, with broad powers to examine the business’s financial affairs. The Trustee generally sells all the assets (if any) and distributes the proceeds to the creditors.

Fully secured creditors, such as collateralized mortgage lenders, have a legally enforceable right to the collateral securing their loans or to the equivalent value. A creditor is fully secured if the value of the collateral for its loan to the debtor equals or exceeds the amount of the debt. For this reason, however, fully secured creditors are not entitled to participate in any distribution of liquidated assets that the bankruptcy trustee might make.

In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge—instead, the entity is dissolved. Only an individual can receive a Chapter 7 discharge (see 11 U.S.C. § 727(a)(1)). Once all assets of the corporate or partnership debtor have been fully administered, the case is closed.

 

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