Chapter 7 Bankruptcy – Liquidation
“Chapter 7 bankruptcy” refers to a petition for bankruptcy relief filed pursuant to Chapter 7 of the U.S. Bankruptcy Code (Title 11 of the United States Code), which allows a liquidation (sale) of an individual’s non-exempt assets and where the proceeds of the sale are subsequently distributed to creditors according to the priorities established in the U.S. Bankruptcy Code. Chapter 7 is just one method for individuals or businesses who elect to file a petition seeking bankruptcy relief, but most often it tends to be used by individuals or business with numerous debts that are not interested in keeping certain property or the business staying open.
Numerous provisions of the Bankruptcy Code allow some types of property to be exempt (excluded) from the liquidation during the bankruptcy proceeding. Property is anything that individual owns or might have the right to own at a future date. In the Commonwealth of Massachusetts, an individual may elect to use either the exemptions allowed by the state law or by the federal law. Basically, individuals can exempt any items that are normally used for support and maintenance which can include clothing, furniture, household goods, and other similar items.
To file for Chapter 7, an individual must meet or be below a certain median income. In the Commonwealth of Massachusetts, the most recent annual income thresholds for filing for Chapter 7 (as of November 1, 2016) are: $60,341 for one-person households, $75,462 for two-person households, $92,587 for three-person households, and $112,235 for four-person households.
Exemptions are Available under State or Federal Law
In a Chapter 7 bankruptcy, individuals when file bankruptcy may utilize the exemption either under the state where the individual has resided at least 180 days prior to filing of the petition or under the federal laws. After filing for Chapter 7 bankruptcy, a Trustee is appointed who is charged with liquidating all of an individual’s non-exempt assets and pay creditors in accordance with the order established by various laws in the Bankruptcy Code.
Certain debts are non-dischargeable under Chapter 7. Examples of non-dischargeable property includes alimony and child support obligations, any debt obtained by fraud, student loans, and income taxes less than three years old.
Rebuilding Credit after A Chapter 7 Bankruptcy Filing
Bankruptcy will appear on a credit report for up to ten years after filing. Other accurate negative reports regarding credit like late payments or foreclosures must be removed after seven years. Post-bankruptcy, obtaining prepaid credit cards may assist in rebuilding credit history.
Situations When Clients Choose Chapter 7
Deciding between filing for Chapter 7 or Chapter 13 bankruptcy can be a difficult decision. Some situations when clients choose to file for Chapter 7 include when a lot of credit card, medical bills, or retail charge accounts debt is present. Generally, Chapter 7 is acknowledged as the quickest and least burdensome way to file for bankruptcy.