Chapter 7 of the Bankruptcy Code provides for “liquidation” of your debt and sometimes your nonexempt assets. The trustee will evaluate the debtor’s nonexempt property and if it can be sold for real value, and distribute it to the creditors. A chapter 7 bankruptcy does not involve a plan of repayment, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses it to pay creditors.
Part of the debtor’s property may be subject to liens and mortgages. Also, the Bankruptcy Code will allow the debtor to keep specific “exempt” property.
Understanding Chapter 7
A case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business of the debtor is organized.
- The debtor must also file with the court:
- Schedules of assets and liabilities;
- Schedule of current income and expenditures;
- Statement of financial affairs; and
- Schedule of executory contracts and unexpired leases.
- Debtors must provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year during the case.
You may have heard of other Chapters for bankruptcy, so let’s clear the air on the main differences between the most common chapters.
Chapter 7 vs. Chapter 11
The most significant difference between these chapters is that Chapter 11 is a “reorganization type of bankruptcy,” usually for businesses, while Chapter 7 is a “liquidation type of bankruptcy.” In Chapter 11, you can negotiate with your creditors to modify the terms of your debts, creating a payment plan without losing your business or assets.
Chapter 7 vs. Chapter 13
Regarding income, the Chapter 7 option is meant for people with limited income, with no ability to pay back all or some part of their debts, while Chapter 13 is more of a reorganization bankruptcy. Chapter 13 allows you to keep all of your assets and make a court-approved repayment plan over the next few years.
If you have financial distress and would like relief, contact a Fort Worth bankruptcy attorney today.