A Bankruptcy Lawyer’s Blog

Chapter 7 Bankruptcy – What Happens

Chapter 7 bankruptcy is available, subject to certain conditions, to both individuals and companies. It must not be taken lightly and any decision to start bankruptcy proceedings should be subject to detailed considerations first.

From a company’s point of view, all business has to take risks to be successful, but sometimes those risks just don’t pay off. It’s what a business does in these times that have a crucial effect on it’s future. If you are considering filing for chapter 7 bankruptcy and want to know how, this article will help to explain.

Whether it is a big or small enterprise, the rules for filing for chapter 7 bankruptcy are the same. Chapter 7 is often the preferred chapter of choice, as it allows a clean slate and the opportunity for a financial restart.

The Bankruptcy Abuse Prevention and Consumer Protection Act introduced in 2005, aims to protect creditors, by ensuring that their outstanding debts are repaid as far as possible. The fact is, chapter 7 provides for liquidation of an individual’s or company’s assets, and appropriation of the proceeds to the creditors. Any debts that remain outstanding after all the sale proceeds have been allocated are written off, leaving those to whom money is still owed out of pocket.

Therefore the law provides for a compulsory means test, so that the applicant for chapter 7 has to prove that they can no longer afford to continue in business or employment. In other words, if the bankruptcy court discovers that with a structured financial plan (the repayment plan), the applicant could in fact, over time, continue in work or business and repay all of his debts, chapter 7 will not be granted.

Instead, a chapter 13 bankruptcy, where a strict repayment plan is worked out by the court, will be enforced. In this case, no assets are sold.

However, should it be found that the applicant for chapter 7 cannot afford to repay their debts over time, chapter 7 will be granted.

Where chapter 7 is granted, all assets are liquidated and the proceeds allocated to the various creditors.

At the time the application is filed, the court will automatically grant “automatic stay”, which means no creditor may contact the debtor in pursuit of payment. This often comes as a relief to the applicant, who is then free from letters and calls from those to whom they owe money.

If a business is the subject of a chapter 7 filing, then the management is sacked and control passes to the trustee, whose job it is to liquidate the assets and try and balance the books.

A chapter 7 bankruptcy stays on one’s credit report for 10 years.

Bob has a wide range of interests, and enjoys writing. Visit his latest website at http://roundtableclothsreview.com/ which helps people find the best deals on a 70 round tablecloth and information for the keen home entertainer.