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An Explanation Of Chapter 7 Bankruptcy

By Bob Tremerituus

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.

Chapter 7 bankruptcy can offer a way out for individuals and businesses who run out of road financially.

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.

If a chpater 7 bankruptcy goes ahead, the individual or business is then protected by “automatic stay”. This means no creditor may pursue them for repayment by any means. All the assets and personal property are sold and the resulting sum of money distributed amongst the creditors. Any outstanding debt is written off.

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.

After 10 years, the bankruptcy is removed form one’s credit record.

There are many things to consider when wondering how to claim bankruptcy. However, how to claim bankruptcy is very easy, but ought only be considered as an absolute last resort.

categories: Bankruptcy,financial difficulty,finance,cash,money,liquidation

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Article Citation
MLA Style Citation:
Tremerituus, Bob "An Explanation Of Chapter 7 Bankruptcy." An Explanation Of Chapter 7 Bankruptcy. 3 Jul. 2010. uberarticles.com. 11 Oct 2014 <http://uberarticles.com/finance/bankruptcy/an-explanation-of-chapter-7-bankruptcy/>.

APA Style Citation:
Tremerituus, B (2010, July 3). An Explanation Of Chapter 7 Bankruptcy. Retrieved October 11, 2014, from http://uberarticles.com/finance/bankruptcy/an-explanation-of-chapter-7-bankruptcy/

Chicago Style Citation:
Tremerituus, Bob "An Explanation Of Chapter 7 Bankruptcy" uberarticles.com. http://uberarticles.com/finance/bankruptcy/an-explanation-of-chapter-7-bankruptcy/


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