Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, effectively forcing the debtor into Chapter 13. Trustee can prevail in a challenge to the debtor's Chapter 7 filing is whether the debtor can otherwise afford to repay some or all of his debts out of disposable income in the five year time frame provided by Chapter 13. One factor in considering whether the U.S. Future ability to obtain credit is dependent on multiple factors and difficult to predict.Īnother aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his or her Chapter 7 filing as abusive. Consumer credit and creditworthiness is a complex subject, however. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. This may make credit less available or may make lending terms less favorable, although high debt can have the same effect. This contrasts with a Chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the Chapter 13 petition. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules.Ī Chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the Chapter 7 petition. Spousal support is likewise not covered by a bankruptcy filing, nor are property settlements through divorce. Common exceptions to discharge include child support, income taxes less than 3 years old, property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7. Other assets, if any, are sold ( liquidated) by the trustee to repay creditors. The value of property that can be claimed as exempt varies from state to state. Most liens, however (such as real estate mortgages and security interests for car loans), survive. In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Chapter 7, as with other bankruptcy chapters, is not available to individuals who have had bankruptcy cases dismissed within the prior 180 days under specified circumstances. Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 ("straight bankruptcy", or liquidation). The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire. Once all assets of the corporate or partnership debtor have been fully administered, the case is closed.
In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge, whereas an individual may (see 11 U.S.C. They are therefore not entitled to participate in any distribution of liquidated assets that the bankruptcy trustee might make. Such as collateralized bondholders and mortgage lenders, for whom the value of collateral equals or exceeds the amount of debt outstanding-have a legally enforceable right to the collateral securing their loans or to the equivalent value, a right that generally cannot be defeated by bankruptcy. Fully secured creditors-that is, creditors, For example, secured creditors will have taken less risk, because the credit that they will have extended is usually backed by collateral, such as assets of the debtor company. The investors who took the least amount of risk prior to the bankruptcy are generally paid first.
When a large company enters Chapter 7 bankruptcy, entire divisions of the company may be sold intact to other companies during the liquidation. This may or may not mean that all employees will lose their jobs. The trustee generally liquidates the assets and distributes the proceeds to the creditors. A Chapter 7 trustee is appointed almost immediately, with broad powers to examine the business's financial affairs. A Chapter 7 filing means that the business ceases operations unless those operations are continued by the Chapter 7 trustee. When a troubled business is unable to pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in a federal court under Chapter 7.
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