Chapter 7 Bankruptcy, like other forms of U.S. bankruptcies, is defined in Title 11 of the United States Code. Bankruptcy is also governed by state law so there will be some differences in the exact bankruptcy laws that fall outside what is written in the article. This article is written to provide a general overview of aspects of bankruptcy as it applies to the U.S.
What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is a personal or business liquidation. What this means is that all non-exempt property - like a house and a car - could be sold for the purpose of paying creditors. The same applies for a business, but the business Chapter 7 is handled in a different way than a Chapter 7 for an individual. The business Chapter 7 is beyond the scope of this article. For more information on this type of bankruptcy see Wikipedia: For Businesses Chapter 7.
For individuals, if there are no assets to sell to pay creditors then the unsecured debt is then "discharged" or wiped clean and the person filing bankruptcy no longer has to pay the debt. Certain assets like: retirement accounts, a primary residence, a primary vehicle - essential property for living - are exempt from being required to be sold. Another guideline for property to be sold is whether it will really make a difference in paying a significant piece of debt off. For example - a 4 year old used PC would not qualify as a significant material possession to warrant being sold therefore you would be able to keep it.
What Are The Different Types of Bankruptcy?
- Chapter 7 - liquidation for businesses and individuals based on exempt and non exempt assets and income
- Chapter 9 - municipalities can file bankruptcy under this chapter.
- Chapter 11 - known as a business reorganization - used primarly by businesses and could by an individual with substantial assets and debts
- Chapter 12 - family farmers and fisherman file under this chapter
- Chapter 13 - similar to Chapter 11 debt reorganization but limited to individuals with an income to make payments on their debt as specified by the trustee.
- Chapter 15 - Allows for cross border cases and situations and allows for ways for cooperation between U.S. and foreign courts when the same debtor is involved in multiple cases.
What Debt Will Be Discharged or Eliminated If I File Chapter 7 Bankruptcy?
When you complete your bankruptcy filing and get through your debtor education and the bankruptcy trustee's review of your petition you will either have your petition approved - debts dicharged, declined - debts not discharged, or the trustee needs further information which will result in a future decision. In the case where your petition, or debt is discharged your debts such as credit card balances owed, medical bills, some personal loans, a balance due on repossessed vehicles - or lease mileage overages, wage garnishments, and payday loans.
Debts that cannot be discharged or dismissed without proving some sort of extenuating circumstance and/or meeting some exemption status as dileniated by the Bankruptcy Code (if you fall into any of these categories, it is best to discuss them with an experienced bankruptcy attorney for guidance and advice) follow below. This is not a complete list, nor does it explain each item in its entirety - the purpose is to bring some of these special cases to your attention in case they impact your personal situation.
- Federal Income Taxes Due unless they are more than 3 years old, filed on time, and correctly filed - you will need to contact an experienced bankruptcy attorney for guidance on your back taxes being dischargeable.
- debts incurred due to a divorce or seperation proceeding
- student loans unless the payment would provide an undue financial hardship
- Automobile fines and debts associated with personal injury or death driving while under the influence of alcohol
- Child support or alimony - the law has gotten tougher on the person who owes the money
- Citations and fines for breaking or violating the law such as criminal restitution ordered by the court and traffic violation fines
- Recent cash advances in excess of $750 if they occured with 90 days of the filing date and recent luxury items and services if they were greater than $500 and purchased within 90 days of the bankruptcy filing date.
With this information in mind, you may be better armed to make a decision about whether filing and discharging a Chapter 7 bankruptcy is right for you. Only you can decide. Speaking with an experienced bankruptcy attorney typcially does not cost anything for an initial consultation. In general, you ought to be able to tell after that meeting if filing a bankruptcy is a legitimate course of action for you to get out of debt.
