We have all heard of chapter 7 bankruptcy, although many of us if asked probably could not give a precise answer to what exactly it entails. Every day people make mistakes when filing for bankruptcy that probably could have been avoided if they had better understood the different types of bankruptcy.
Certainly no one wants to become involved in bankruptcy proceedings. Anyone who does will have to have debts that greatly exceed his or her net worth and, in addition, have no visible or viable means of paying back the debts.
There are a number of different forms of bankruptcy such as chapter 11 bankruptcy and the more common chapter 7 bankruptcy. Since chapter 7 bankruptcy is more common for individuals, it is the one we will focus on here.
Chapter 7 bankruptcy explained
According to the law and the United States court system, Chapter 7 bankruptcy refers to liquidation of assets that are not legally exempt from liquidation in order to pay off creditors and debtors.
If you are a corporation, business and or partnership you will also be able to apply for this chapter like an individual. Chapter 7 bankruptcy is however different for individuals in that they have open to them a special extra clause in the bankruptcy filing framework.
The special clause for the public is called a discharge. What it basically means is that the public are able to free themselves totally from some of their debts.
Filing Chapter 7 Bankruptcy
On a baseline level, those filing for Chapter 7 must provide copies of tax returns; executed contracts and leases that have been expired; financial affairs statements; proof of assets and liabilities; and copies/schedules of current expenditures and income.
For individuals there are additional items that must be provided to the court as well. These items include copies of credit counseling reports and repayment plan programs, employer payments and statements of income, interest payments on student loans, etc.
This is, of course, a brief overview and more detailed information is provided by the government and federal courts at the website uscourts [dot] gov. However, remember filing for Chapter 7 protection by yourself is not advised, you should get professional help from a lawyer.
