What is Chapter 7
It is not an easy task to come out from a deep dept. Getting into bankruptcy, is a very serious decision, the impact of which on your life could be severe. Here is some useful information on Chapter7 which you might consider while filing a bankruptcy. Chapter 7 is a bankruptcy provision which is designed for individuals and comes as a respite for the debt incurred by them, by eliminating them by liquidation of your assets, supervised by the court. The proceeds which come out of the liquidation process will be used to pay off the debts to the creditors in accordance to the laws specified by the personal bankruptcy provision.
Chapter 7 bankruptcy is often used by individuals. However, businesses run by a sole proprietor, troubled by heavy debts also enter into this provision. Let’s quickly go through the process by which an individual comes under the chapter 7 bankruptcy provision.
- An individual at the first place can wipe out all his unsecured debt which refers to the debt which doesn’t require collateral like credit cards, store cards, medical bills, unsecured personal loans and also certain taxes.
- Once the debtor files the chapter 7 bankruptcy, a trustee is appointed by the court who will take over the responsibility of settling the creditors with the available assets of the debtor (person who owes) and generally oversees the entire bankruptcy process. This filing process takes almost four to six months. However there are few assets that can be kept by the individual as exempt property.
- From this point the creditors are restricted from engaging in activities of collection against the individual without obtaining consent from the judge who’s handling the bankruptcy.
- Now the liquid cash which was previously used to settle the creditors can be retained by the individual for starting afresh with his long term goals.
Now one must understand the fact that not all the debt incurred by the individual is eliminated. There are few types of debts which cannot be discharged under the chapter 7 bankruptcy provision and the individual continues to owe such debts. They include child support, student loan (if not proved with the hardships involved), income tax less than 3 years old, spousal support, court fines for any act of crime by the individual and the property taxes.
Though, filing a chapter 7 bankruptcy has effectively saved the individual from the clutches of the creditors, there are few drawbacks involved in such filing, which the debtor should definitely consider before he makes such commitment. The biggest setback is that the credit report of the individual will now start having a record of such bankruptcy for next ten years staring from the date of filing. This credit report serves as one’s report of creditability, which is checked by most of the potential lenders before lending money. A bankruptcy report might either affect the credit amount the debtor may require or the terms of credit could be less favorable.