Bankruptcy chapter 7
Bankruptcy refers to the legal declaration done by an individual or company of being unable to pay their creditors. Bankruptcy can be declared by individual, company or creditor. In U.S cases of bankruptcy are handled by federal court. Bankruptcy chapter 7 cases cannot be filed in state court. All the 94 federal judicial districts take care of bankruptcy matters.
Different provisions of bankruptcy laws:
* Chapter 7 : The people who are unemployed or badly in debt use provision of bankruptcy chapter 7 to initiate bankruptcy
* Chapter 13: It is preferred in case debtor has some property which cannot be completely exempted and he/she still wants to keep it. In this condition debtor proposes a plan to repay within 3- 5 years
* Chapter 11: It is mainly used by those businesses who want to reorganize business and repay debts
* Chapter 12 : It was established for farmers but is no longer active
Chapter 7
The people who are unemployed or badly in debt use provision of chapter 7 to initiate bankruptcy. It offers liquidation of assets rather than reorganization. Court supervises the petition and United state trustee sell all the assets and distributes the cash to creditors leaving exempt property. These cases are also called as no-assets cases as there is usually little or no nonexempt property. This is also called as straight bankruptcy. After bankruptcy debtor will no longer owe money to credit card, house rent, unsecured loan, unpaid bills, retail charge cards & utility bills. Usually debtor is discharged within 3-4 months of filling the petition. Debts are absolved completely. There are 6 classes of claims. The debtor is only paid if all other classes have been paid in full.
System of filling petition:
* File the petition for bankruptcy in federal court of your area.
* File all information regarding assets and liabilities.
* Submit all statement of finances.
* Submit a schedule of income and expenses.
* Submit tax return of the last financial year.
* Submit a certificate of credit counseling.
* Submit a schedule of executory contract.
* Submit the fees. The total fee in this case is $209, $155 as filing fee, $39 as administration fee, and a $15 as trustee fee. Court can waive this fee if the total income of debtor is below 150% of poverty line.
All the information need to be filled in the prescribed form which can be purchased from a stationery shop or can be downloaded from net. To fill the form you should have the complete list of all creditors with the amount due, all the sources of income and expenses like food, clothing rent, medical expenses etc and list of all assets. Along with form, debtor also needs to file the schedule of "exempt" property. The debtor can consult federal laws and an attorney to determine the exemptions available.
If only one of the spouse is filling the petition for bankruptcy than also while filling the form the income and expenses of the non-filing spouse is also required to evaluate household's financial position.
Role of trustee:
Trustee plays the most important role in the proceedings as bankruptcy chapter 7 is a liquidation process, all assets are sold by trustee to repay the creditors. Trustee acts like an impartial and liquidates all nonexempt property to maximize the return. Debtor needs to completely cooperate with trustee and provide all information and documents. Trustee can ask debtor questions at the meeting of creditors. Trustee also makes sure that debtor is fully aware of the potential consequences of bankruptcy .He also gives chance to debtor to change the chapter from 7 to 13 or 12. Trustee also provides written information to the debtor.
Trustee also has avoiding powers:
* To set aside preferential transfers within 90 days.
* Pursue bulk transfer remedies.
* Pursue fraudulent conveyance.
* To operate business for some time.
According to 2004 statistics there has been 1,153,865 cases of bankruptcy. 1,156,284 were filled by individual and 21,008 by businesses.
Businesses filing petition under Chapter 7:
When any business is going through a loss and it is badly in debt, business does not have any money to pay creditors & shareholders then business men can file the petition in federal court under the provision of chapter 7. Filling the case under bankruptcy chapter 7 means end of business.
As soon as the case if filled in court, court appoints a trustee .Trustee sells all the property and assets of the company to repay creditors. End of company at times means loss of job for all employees. But many times some other companies buy the whole business and retain employees. Only individuals can receive discharge in case of chapter7, partnerships never gets discharge. Secured creditors have a priority claim over unsecured creditors
Individuals filing petition under Chapter 7:
Individuals who are unemployed or badly in debt use provision of chapter 7 to initiate bankruptcy. Again in this case trustee is appointed who sell the unexempted property and assets and repays creditors. It is the case of straight bankruptcy. The individuals can keep some exempt property. Value of exempted property varies from state to state. Many unsecured loans are cancelled.
Thus according to U.S state constitution bankruptcy is a privilege .It adjusts between debtors and creditors. Many debts are forgiven. Most of the property is sold to repay creditors, debtors are allowed to keep some property known as exempt item. Creditors can receive nothing or entirely.
Bankruptcy stays on your credit report for 10 years .It may make difficult or very expensive to get credit in the future. You cannot file bankruptcy, more than once in 6 years.
Some people consider bankruptcy chapter 7 as stigma as they can be considered as runaway from debts. There is also property and reputation loss. Whereas few other consider
that bankruptcy reduces the stress as loan repayment is done by trustee. Bankruptcy helps the debtor to go for a fresh start in life.
Other Articles
