Bankruptcy is defined as the inability of a person or business venture to discharge all debts as they come due. However, not all kinds of bankruptcy are the same. Chapter 7 Bankruptcy of Title 11 of the United States Bankruptcy Code deals with a specific type of bankruptcy, this being the regulation of the process of liquidation of a business or of an individual’s assets as defined by the bankruptcy laws of the United States. When in the position of being bankrupt, there are a few questions that naturally arise and giving each one an answer is a very wise step. Concerns pertaining to bankruptcy must be addressed so as to give a debtor a better understanding of the roundabouts of bankruptcy and his rights in this situation.
Being the most common form of bankruptcy in the United States, Chapter 7 insolvency has applications for both the individual and for businesses. This type of bankruptcy is notoriously severe and under its guidelines a set progression of events are mandated by the court. First, a trustee designated by the court will collect the individual's assets. Liable assets are put up for sale in exchange for cash. The trustee will then distribute the proceeds to the creditors involved. However, there are assets that are exempt from this cruel process of liquidation. Assets that are excused by federal or state legislature do not have to be sold. What these assets are will be further discussed as the specifics of Chapter 7 are reached. Another specific rule specifies that once a Chapter 7 process is finalized and all assets are sold and proceeds are distributed, this process cannot be repeated for the next six years.
How does Chapter 7 Bankruptcy apply to a business?
Once a floundering business cannot meet due payments of debt or service its creditors, it may willingly, or under duress from its creditors, put into motion a claim for Chapter 7 bankruptcy under a federal court. Once this Chapter 7 process is begun, all business operations must cease unless they are conducted by the court appointed Chapter 7 trustee. This trustee will also be granted responsible and authority to scrutinize a business's assets and financial dealings. Once this is done the trustee may hawk the assets and deal out the proceeds to the creditors. One such concern that is involved in Chapter 7 bankruptcies is whether all the employees of the said company will lose their positions. This may depend on the size of a company. Whole divisions of a huge company may be parceled out and in this situation employees may be able to keep their jobs, but with a smaller business this may be improbable.
Distribution of assets is another particular point of concern. Creditors with a stake in the debt are legally entitled to take part in the distribution of the collateral or liquidated assets. However, a fully secured creditor, defined by whether his security interest for the loan to the debtor is equal to or exceeds the amount of the debt, will not be able to participate in the distribution of these said assets.
Chapter 7 discharge from bankruptcy is not possible with corporations or partnerships. Once a business has gone through the procedures of Chapter 7, this body is considered to be dissolved and the case is ended and filed to be closed. However, all remaining debts of the corporation or partnership are theorized to exist until all relevant time periods of regulations expire.
How does Chapter 7 Bankruptcy apply to an individual?
Chapter 7, when applied to an individual, is called “Straight bankruptcy” and individuals with a place of residence, place of business or own property within the borders of the United States, may file for this said type of insolvency. Once a petition is submitted, a trustee is selected with the same authority that has been previously discussed. Assets will then be evaluated and sold as the procedure dictates and proceeds will be distributed among the creditors.
The prime purpose of a Chapter 7 petition is to free an individual from unsecured debt and to allow him a 'fresh start'. Freedom from secured debt can also be had but the debtor will have to surrender any assets involved. If the secured asset is, for instance, a car or a house, the debtor may be given the option to keep the asset provided he sign a renewal of the former agreement and keep his payments on the asset current. Further, one of the biggest benefits of a Chapter 7 discharge inhibits creditors from any actions that would be seen as a mode of collection of the debt as the debtor has been released from the said debt. This indeed does sound nice, don't you think? But, it's not as simple as that. Debtors who would want to declare bankruptcy under Chapter 7 will first have to qualify. A means will have to be 'passed' for you to be a legitimate Chapter 7 Bankruptcy case. To pass you will have to show that you don't have the means to pay, otherwise, if it is found that you are able to make small payments, your case will be pushed to Chapter 13. But that is altogether another part of Title 11 of the United States Bankruptcy Code.
Bankruptcy is indeed an ugly word and fact, but those of us who have fallen into this mishap shouldn't be overly concerned or anxious as provisions have been made for us to have a way out and have a clean slate to be able to start again. However, I hope that none of us ever have to file anything under the Title 11 of the United States Bankruptcy Code.