Chapter 7 Bankruptcy Laws 

Filing for bankruptcy  under the Chapter 7 bankruptcy laws has  perhaps one major advantage, and one major disadvantage. 

Perhaps the major attraction of the Chapter 7 bankruptcy laws is that it allows the filer to restart their life debt free and with a "clean slate". However, the downside is that Chapter 7 results in the liquidation of personal property and valuables, including the family home, as opposed to Chapter 13, where no assets have to be sold. 

A Chapter 7 bankruptcy stays on one's credit record for ten years, as opposed to Chapter 13's  seven. 

Once a bankruptcy under the Chapter 7 bankruptcy laws has been filed, the individual filing then has the protection of the court by means of an "order of relief" and "automatic stay". This means that all creditors are prevented from hounding the individual which is important, particularly if a foreclosure notice has been served.

It is important to bear in mind that not all debt can be legally discharged. For example, alimony payments, tax payments and liens on mortgages to name three, cannot be discharged. In this case a Chapter 13 filing may be more appropriate, one difference being is that Chapter 13 works out a repayment schedule.

The process to file under the Chapter 7 bankruptcy laws is as follows:

1.   List all details of your property and values. Note down your income details, payment frequency and amount. List your creditors and the amounts owed.

2.   Complete required bankruptcy forms and file them at your nearest federal court.

3.   The "order of relief" is then issued which then prohibits even a phone call by your creditors demanding payment.

4.   Approximately one month later the court will notify you of the "341" meeting that it is compulsory for you to attend. This gives the creditors the chance to check that you are unable to meet your debts to them, and are not merely trying to avoid payment. Once satisfied, the discharge will be approved.

5.   This is where a Trustee is appointed to oversee the liquidation of your non exempt  assets, which are duly sold.

6.   After approximately 2 – 3 months the discharge is granted by the court and a discharge notice issued.

7.   On receiving the discharge notice, all personal liability for any discharged debt is removed, and no further action can be taken by creditors against the individual or their exempted property.

Individuals are granted a discharge under Chapter 7 bankruptcy laws in 99% of cases.

Grounds for denying a discharge are:

1   Failure to produce proper financial records

2   Failure to explain any loss of assets

3   The individual committed a bankruptcy crime

4   The individual broke a bankruptcy court order

5   The individual concealed, destroyed or transferred any property that belonged to their estate.

In the case of 5, above, should the circumstances detailed be found out after a discharge, the discharge may be revoked.

Finally, in some cases, certain property, although pledged, for example a cherished classic automobile, may be kept under the chapter 7 bankruptcy laws if the debt is "reaffirmed". This is an agreement between the individual and the creditor, agreeing that the property may be kept as long as repayments are maintained. This must be in writing, filed with the court and done so before the granting a discharge.

Alternatives to Chapter 7 are Chapter 11 and Chapter 13.

Chapter 11 is useful if you are in business and wish to avoid liquidation, while Chapter 13 allows you to retain your personal property. Indeed, you may be forced into Chapter 13 if it is found that you have the financial means to effect a workable Chapter 13 financial repayment plan.