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 borrowers must consider submitting an application under chapter 11 of the Bankruptcy Code. Under phase 11, the debtor might seek a change of financial obligations, either by decreasing the financial debt or by extending the time for repayment or may look for a much more thorough 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
Subject to the methods test defined above for specific borrowers, relief is offered under phase 7 irrespective of the amount of the borrower’s financial debts or whether the borrower is solvent or bankrupt. An individual can not file under chapter 7 or any kind of various other phase, nonetheless, if during the coming before 180 days a previous personal bankruptcy request was rejected due to the debtor’s unyielding failure to show up prior to the court or conform with orders of the court, or the borrower voluntarily disregarded the previous situation after lenders looked for relief from the personal bankruptcy court to recuperate property upon which they hold liens. In enhancement, no individual might be a borrower under chapter 7 or any kind of phase of the Bankruptcy Code unless he or she has, within 180 days prior to declaring, obtained credit scores counseling from an approved credit scores therapy agency either in a specific or team rundown.
Among the primary objectives of personal bankruptcy is to discharge specific debts to provide an honest specific borrower a “clean slate.” The borrower has no obligation for discharged financial debts. In a chapter 7 situation, nevertheless, a discharge is just available to specific borrowers, not to collaborations or corporations. 11 U.S.C. § 727(a)( 1 ). Although a specific chapter 7 case usually leads to a discharge of financial debts, the right to a discharge is not outright, and some types of financial obligations are not released. Moreover, an insolvency discharge does not snuff out a lien on home.
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