Chapter 7
Bad Debt Consolidation by splinder
Filed under Bankruptcy
Chapter 7 (as included in the Title 11 of the United States Code) is a bankruptcy procedure as per Federal law. It is a court-supervised liquidation proceeding where a trustee collects all the assets of the debtor. These assets are reduced to cash to repay creditors. However, a debtor can exempt a certain amount of property from liquidation, as per constitutional rights. Chapter 7 is the most prevalent form of bankruptcy proceedings in the US.
Chapter 7 for Businesses
A business facing severe debt crisis can apply for, or will be forced by its creditors to apply for Chapter 7 bankruptcy. Once bankruptcy has been filed, the business ceases its operations. As per the official process, a Chapter 7 trustee is appointed to mange the liquidation process. The trustee has the authority to:
- Continue business operations if financial recovery is possible within legal framework.
- Sell off all the assets of the bankrupt entity and pay back to creditors.
In both scenarios, the jobs of employees are not secured. However, some of the employees can survive the liquidation process of the company they work for. Fully-secured creditors are protected by law for an equivalent share in the sell-off amount. Due to their possible influence on the liquidation, such creditors are isolated from the process.
Chapter 7 is the best for individual business units, and not ideal for cooperatives or partnerships. Only an individual can get a bankruptcy discharge under per Chapter 7, as per federal laws. Discharge in bankruptcy is a situation where the involved business is free from all preceding financial obligations.
Chapter 7 for Individuals
All the individuals residing in the US, or owning assets in the country can apply for Chapter 7 bankruptcy in a Federal court. Here, an individual is allowed to exempt some of their assets from liquidation. However, the list of assets that can be exempted varies amongst states. Bankruptcy discharge remains on a debtor’s credit report for a maximum period of 10 years. If the case is found fraud after investigation, trustees can challenge the Chapter 7 filing as abusive. In such a scenario, debtor will not be eligible to receive discharge in bankruptcy.