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Chapter 7 of the Title 11 of the United States Code manages the process of complete liquidation as opposed to other forms of bankruptcy which manage reorganization. Most people understand that they are commonly used for personal liquidation, but few people realize that they can also be used by businesses. Businesses Sometimes a business can get so badly in debt that it cannot reorganize to pay off its creditors. When this is the case, a Chapter 7 is often in order. A trustee is quickly appointed to review the business. In most cases, the trustee sells all of the assets of the business and forwards the proceeds to its creditors. Sometimes an entire division is sold to another business and some employees may retain their positions. In other cases, all employees will lose their jobs and the business operations discontinue. Fully secured creditors can obtain the collateral for their loans and cannot be defeated by the bankruptcy. The value of the collateral must equal or exceed the amount of the debt. Fully secured creditors then cannot participate in the distribution of liquidated assets. Individuals Similar to business situations, individuals who get in over their head with debt often turn to Chapter 7 for personal protection. Under the personal code, individuals may keep certain property which is designated as exempt from the proceedings. Such property is determined by individual state laws and may include things like your home or auto that are considered necessities for everyday life. Any liens on these types of assets that are exempt will survive the bankruptcy, like real estate mortgages and car loans. Outside of your secured debt, most types of unsecured debt are discharged through this process with a few exceptions. Examples of these include child support, property taxes, and student loans (or other federal debts). For those creditors of dischargeable debt, it is unlikely they ever receive much of a settlement, however the law allows them to receive a distribution of available funds from any assets that are sold. The aftermath of Chapter 7 bankruptcies can be difficult on an individual’s credit as they remain on your credit report for ten years as a matter of public record. It is fairly well documented that this can have a severe impact on your ability to borrow money or otherwise obtain credit down the road. The Filing Process It is always a good idea to consult an attorney regarding this type of financial and legal matter. However, it is not absolutely necessary and many people attempt to go the “do it yourself route” and can find forms for filing which can be obtained from the US Courts. These forms may be Microsoft Word documents or Adobe Acrobat PDF files, but do not include intelligent guidance through each form. As such you are at your own risk if you try to handle them yourself. Other alternatives include bankruptcy software that does not require the debtor to complete the actual form. You can also use a non-attorney petition preparer. These preparers are trained but their use does not guarantee compliance with all laws and regulations. Other steps of the process include a means test which is applied to see whether or not you are a viable candidate for these types of proceedings. There is also a meeting with creditors to determine the details of the discharge. However, once your petition is complete and acceptable, the trustee sells all available assets, and the funds are distributed to the appropriate creditors. You case is then over and you get a fresh start without the burden of overwhelming debt.
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How businesses and individuals navigate Chapter 7 bankruptcy
