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 think about filing a petition under phase 11 of the Bankruptcy Code. Under phase 11, the borrower might look for a change of financial obligations, either by minimizing the financial debt or by expanding the time for settlement or might seek an extra extensive reconstruction.
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
Topic to the means test described above for individual borrowers, relief is offered under phase 7 irrespective of the quantity of the debtor’s financial debts or whether the debtor is solvent or financially troubled. An individual can not file under chapter 7 or any kind of various other chapter, nevertheless, if during the preceding 180 days a prior personal bankruptcy request was dismissed due to the borrower’s unyielding failure to show up before the court or abide with orders of the court, or the debtor willingly dismissed the previous case after financial institutions sought alleviation from the personal bankruptcy court to recuperate residential property upon which they hold liens. In addition, no person may be a debtor under phase 7 or any kind of chapter of the Bankruptcy Code unless he or she has, within 180 days prior to filing, got credit report counseling from an accepted credit score counseling company either in an individual or team rundown.
The borrower has no liability for discharged financial obligations. In a phase 7 case, nonetheless, a discharge is just available to individual debtors, not to collaborations or corporations. A specific phase 7 instance typically results in a discharge of financial debts, the right to a discharge is not outright, and also some types of financial debts are not released.
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