Chapter 7 Bankruptcy: What Is It & How To File

Bankruptcy is a legal process that allows individuals and businesses to reorganize or liquidate their assets to pay off creditors. Chapter 7 bankruptcy, also known as "liquidation bankruptcy," is one of the most common types of bankruptcy filings in the United States.

What Is Chapter 7 Bankruptcy?

Bankruptcy provides a fresh start for individuals and businesses by allowing them to stop making payments to creditors. In exchange, debtors must assume responsibility for all their debts, including taxes, credit cards, and personal loans. Chapter 7 bankruptcy is typically filed with the U.S. Bankruptcy Court in the district where the debtor resides or works.

How To File Chapter 7 Bankruptcy

The process of filing Chapter 7 bankruptcy involves several steps:

1. Meet the eligibility requirements, which typically include a net worth of less than $1.5 million and an income of less than $259,200 for individuals or $121,500 for businesses.
2. File a petition with the U.S. Bankruptcy Court in the district where you live or work.
3. A trustee will be appointed to oversee the bankruptcy process and ensure that all creditors are paid in full.

What Happens After Filing

After filing Chapter 7 bankruptcy, the debtor's assets are liquidated to pay off creditors. The most common type of asset sold is non-exempt property, which includes personal effects and household items. Exempt properties, such as primary residence, retirement accounts, and certain business assets, are protected from creditor seizure.

Benefits Of Chapter 7 Bankruptcy

Bankruptcy can provide several benefits to individuals and businesses, including:

• A fresh start by eliminating or reducing debt.
• The ability to protect certain assets from creditor seizure.
• Lower monthly payments by creating a plan to pay off debts over time.

Creditor Protection

In Chapter 7 bankruptcy, creditors can only claim a limited portion of the debtor's non-exempt assets. This means that individuals and businesses may be able to keep more assets than they might in a Chapter 13 bankruptcy, which allows for debt repayment over time.

Conclusion

Bankruptcy can be a complex process, but understanding the basics of Chapter 7 bankruptcy can help individuals and businesses make informed decisions about their financial situation. If you're considering filing for Chapter 7 bankruptcy, it's essential to consult with an experienced bankruptcy attorney to ensure that you receive the best possible guidance and representation.

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