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Simply Put...
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Chapter 7 of the Bankruptcy Code provides for "liquidation" – the sale of a debtor's nonexempt property, and the distribution of proceeds to the debtor’s creditors. A Chapter 7 bankruptcy case does not involve the filing of a plan of repayment, as in Chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor's non-exempt assets, and then uses the proceeds from such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.
Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property- however, a trustee will liquidate the debtor's remaining assets. Because filing of a petition under Chapter 7 may result in the loss of property, potential debtors should consult with a bankruptcy expert to plan accordingly or file under Chapter 13, which may afford protection of the nonexempt property. Chapter 7 EligibilityTo qualify for relief under Chapter 7, the debtor may be an individual, a partnership, or a corporation or other business entity (however, only individuals are allowed exemptions to the liquidation of assets). Subject to the Chapter 7 means test described above for individual debtors, relief is available under Chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent.
An individual cannot file under Chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. Additionally, no individual may be a debtor under Chapter 7 or any chapter unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. One of the primary purposes of bankruptcy is to discharge certain debts in order to provide an honest individual debtor with a "fresh start." The debtor has no liability for discharged debts. In a Chapter 7 case, however, a discharge is only available to individual debtors- NOT to partnerships or corporations. Although an individual Chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts cannot be discharged*. *NOTE > a bankruptcy discharge DOES NOT extinguish any liens on property.
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