Chapter 7 Bankruptcy

Chapter 7 (called “liquidation” or “regular bankruptcy”) is the most common form of bankruptcy.  It is a proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities among creditors established in the Code.  Debtors permitted to file under Chapter 7  include individuals, married couples, corporations and partnerships.

The Bankruptcy Code will allow the debtor in a Chapter 7 filing to keep certain “exempt” property.  However, potential debtors should be aware that filing a bankruptcy petition in Chapter 7 can result in the loss of property.

Some of the information that is included in a bankruptcy petition is:

  1. A list of all creditors and the amount and nature of their claims;
  2. The source, amount, and frequency of the debtor’s income;
  3. A list of all of the debtor’s property; and
  4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Filing a petition under Chapter 7 will “automatically stay” (i.e., stop) most collection actions against the debtor.  This will include collections against the debtor’s property.  Be aware that the the stay does not apply to ALL collection activities and in some situations the stay will only be effective for a short period of time.  The bankruptcy clerk will give notice of the bankruptcy case to all of the creditors whose name and address are provided by the debtor in the bankruptcy petition.

Upon completion of the bankruptcy filing, the debtor will be released from personal liability from most debts and creditors will be prohibited from taking any collection actions against the debtor.  However, there are many exceptions to a Chapter 7 discharge and debtors should consult with a competent bankruptcy attorney before filing in order to determine the scope of the discharge.

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