Chapter 7 bankruptcy is one of a number of categories of bankruptcy that makes up the Bankruptcy Code that was enacted in 1978, and amended in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
In particular it deals with the situation faced by individuals and businesses who are unable to meet their debts and require protection from their creditors.
Chapter 7 Bankruptcy For Individuals Individuals can file for bankruptcy under Chapter 7 can have certain debts discharged if they meet the necessary criteria.
These necessary criteria were established under BACCPA (2005) and now include both a means test and the requirement to receive credit counseling.
Before being granted a Chapter 7 bankruptcy an individual will need to show that their disposable income falls below a certain threshold which will vary slightly from state to state based on the average income of that state.
The individual will also need to have received credit counseling from an accredited organization at some stage in the 180 days prior to their petition to be declared bankrupt.
Under Chapter 7 certain assets can be kept by the individual while others will need to be sold off to pay back some of the debt.
There are also certain debts which cannot be discharged under Chapter 7.
These would include such things as child support, property taxes, income taxes incurred in the past three years, student loans and fines.
Chapter 7 Bankruptcy For Businesses A business may file for bankruptcy under Chapter 7 if they are heavily in debt and cannot service this debt with the current income of the business.
A Chapter 7 trustee is appointed and they will generally order the cessation of operations.
At this point they have a couple of options.
The most common of these is to simply take stock of the assets of the business and sell these off in an attempt to pay the creditors the money owed to them.
The second option applies mainly to larger businesses.
If possible, individual divisions of the business may be sold to other companies to help meet the debts.
Under a Chapter 7 bankruptcy for a business the debt is not discharged.
Instead the business is dissolved.
It is recommended that anyone filing for Chapter 7 Bankruptcy seek legal assistance.
One of the provisions of this category of bankruptcy is that your petition will automatically be denied if you have had a petition rejected in the past 180 days.
What this basically means is that if you apply and are rejected because you prepared your case inadequately you will not be able to reapply for six months.
And when you are in financial trouble, waiting this long may be too late - so it's important for you to get it right the first time.