Chapter 7 Bankruptcy
What does Chapter 7 Bankruptcy mean?
Chapter 7 Bankruptcy, also called liquidation bankruptcy, is defined under Title 11 of the Bankruptcy Code. Chapter 7 Bankruptcy allows a bankruptcy trustee to take non-exempt, unencumbered assets and sell the assets to pay unsecured debt in priority order.
Certain secured debts may be exempt property as defined by state and federal bankruptcy laws and not subject to liquidation. A creditor holding an unsecured claim will get a distribution of the available funds if the case is an asset case and the creditor files a proof of claim with the bankruptcy court. All non-exempt debts not paid in full during the payment process will be discharged at the end of the bankruptcy process. If a filing debtor does not have any qualifying assets to liquidate, the case is considered a no-asset case and all of the qualifying non-exempt debts will be discharged.
To qualify for relief under Chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. One of the primary purposes of filing a Chapter 7 Bankruptcy is to discharge certain unsecured debts. The debtor has no liability for discharged debts. In a Chapter 7, a discharge is only available to individual debtors, not to partnerships, corporations, or business entities.
To qualify for Chapter 7, the individual or entity cannot have filed a Chapter 7 Bankruptcy within the past eight years or a Chapter 13 bankruptcy within the last six years. Debtors also cannot have had a bankruptcy dismissed in the past 180 days for violation of a court order, or have been found to have committed fraud or abuse of the bankruptcy system. They also cannot have requested a dismissal after a creditor asked for relief from the automatic stay or have been found to have defrauded their creditors.