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Chapter 7 Bankruptcy - A Quick Overview

The concept of bankruptcy that the common person has, is about the chapter 7 bankruptcy. This type of bankruptcy is also termed as straight bankruptcy or liquidation bankruptcy. This article intends to explain the basic things that you need to know regarding the chapter 7 bankruptcy.

What is chapter 7 bankruptcy?

Once a debtor is granted bankruptcy under the Chapter 7 bankruptcy, a trustee is appointed by the bankruptcy court. The trustee then arranges to sell off all the assets, as declared by the debtor. The money thus collected is used to pay off the debts owed to various creditors based on the priority level, if any. This way, we can see that the chapter 7 bankruptcy is the worst kind of bankruptcy. The debtor gets no chance to continue with their business operations. All their assets are sold off, except for the exempted assets as applicable as per the specific bankruptcy laws of that particular state.

Is chapter 7 bankruptcy a matter of choice?

The first thing that you must know regarding the chapter 7 bankruptcy is that it is not a matter of choice. Not everybody can file for bankruptcy under chapter 7. There are certain eligibility criteria that you need to fulfill, in order to file a petition for chapter 7 bankruptcy in the bankruptcy court. After the inclusion of the new bankruptcy laws to the bankruptcy code, now it is mandatory for all the debtors to pass a means test before filing bankruptcy. The MEANS test is a procedure, where you have to analyze your income and expenses, in order to see if the money left after deducting the necessary expenses is sufficient to pay off the monthly installments of the various debts that you owe. If the money left is less than the median income of the state, you can qualify for the chapter 7 bankruptcy. On the other hand, if the money left after deducting the expenses, is more than the median income of the state, you will not be able to file bankruptcy under chapter 7 of the bankruptcy code. For such cases, chapter 13 bankruptcy is applicable.

How much does chapter 7 bankruptcy cost?

Filing bankruptcy under chapter 7 of the bankruptcy code, costs almost 250 to 350 dollars depending upon the specific case. However, you should not forget about the long-term bankruptcy cost that chapter 7 bankruptcy brings with it. Once you are declared bankrupt under this chapter, the bankruptcy will keep affecting your financial life negatively, for the next 10 years at least.

Chapter 7 bankruptcy is the most common form of bankruptcy, as defined in the bankruptcy code. However, you must be aware of the new bankruptcy laws, before you go ahead and file for bankruptcy under this chapter. To know more about bankruptcy lawyer and other details about filing bankruptcy process and also tips to avoid bankruptcy visit Filing Bankruptcy.

Source: www.ezinearticles.com