Chapter 7 – Bankruptcy Basics
This chapter of the Bankruptcy Code provides for “liquidation” – the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.
Such debtors must think about filing a request under phase 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of financial debts, either by reducing the debt or by expanding the time for payment or may seek an extra detailed reorganization.
In addition, individual debtors who have regular income may seek an adjustment of debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to “catch up” past due payments through a payment plan. Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707(b).
If the debtor’s “current monthly income” (1) is more than the state median, the Bankruptcy Code requires an application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $12,850, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $7,700. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed. 11 U.S.C. § 707(b)(1).
Debtors should also be aware that out-of-court agreements with creditors or debt counseling services may provide an alternative to a bankruptcy filing.
Chapter 7 Eligibility
To receive relief under phase 7 of the Bankruptcy Code, the borrower may be a private, a partnership, or a company or various other company entity. 11 U.S.C. § § 101( 41 ), 109(b). Topic to the means examination defined over for individual debtors, alleviation is readily available under chapter 7 irrespective of the quantity of the debtor’s financial debts or whether the debtor is solvent or financially troubled. A person can not file under chapter 7 or any kind of other phase, however, if during the coming before 180 days a previous insolvency petition was disregarded because of the debtor’s unyielding failure to show up on trial or follow orders of the court, or the debtor willingly disregarded the previous case after financial institutions sought alleviation from the insolvency court to recover home whereupon they hold liens. 11 U.S.C. § § 109(g), 362(d) as well as (e). On top of that, no person might be a debtor under chapter 7 or any type of phase of the Bankruptcy Code unless he or she has, within 180 days prior to declaring, obtained credit score counseling from an authorized credit history counseling firm either in a private or group briefing. 11 U.S.C. § § 109, 111. There are exemptions in emergency situation situations or where the U.S. trustee (or personal bankruptcy administrator) has determined that there want approved firms to give the needed counseling. If a financial obligation monitoring plan is established throughout called for credit rating therapy, it must be filed with the court.
The debtor has no responsibility for released financial debts. In a chapter 7 situation, nevertheless, a discharge is just offered to private debtors, not to partnerships or companies. A private phase 7 instance usually results in a discharge of financial debts, the right to a discharge is not absolute, and also some kinds of financial obligations are not released.
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