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Chapter 7 Bankruptcy – Overview
July 22nd, 2007 by Shenron
When you file for Chapter 7 bankruptcy, you are basically handing over your debts and your properties to the bankruptcy court. While your debts may be cancelled, the court will order the liquidation of some of your property in order to pay off your debts. You can’t sell or give away any of your property without permission from the court although in some cases, the court may give you limited freedom to handle properties and income you acquired after you filed for bankruptcy.
The court will assign a bankruptcy trustee to your case. The responsibilities of this person include determining which of your properties are exempt (that which the court allows you to keep) and nonexempt (those that will be taken to pay your creditors). You are required to surrender nonexempt properties to the trustee or you may provide its equivalent value in cash. The trustee may decide that a property is not worth selling so you get to keep it even though it is nonexempt. In most Chapter 7 cases, the properties are either exempt or are basically worthless in terms of raising money for the creditors. If the trustee has determined that all properties are exempt, a no distribution report will be submitted to the bankruptcy court. If there are nonexempt properties, the trustee will collect and sell these and give the proceeds to your creditors. The trustee should also ensure that you have properly reported all your assets. If your creditors think that you have not been truthful in declaring your financial status, it is the duty of the trustee, as the representative of your creditors, to ask the judge to deny your discharge.
Not everybody however can file for Chapter 7 bankruptcy. In the new bankruptcy law, you will be required to take the “means test†before filing. This is to determine if you have enough disposable income (income after expenses for the basic necessities and other debt repayments has been deducted) to repay your creditors. If the court has determined that you have a stable and adequate income to pay your creditors, you will be forced to use Chapter 13 bankruptcy if you insist on filing. You also will not be allowed to file if you have been granted a discharge from your debts within the last eight years if the bankruptcy was filed under Chapter 7 and within the last six years if it was filed under Chapter 13.
When the court has recovered evidence that you tried to defraud your creditors or that you have not been truthful in reporting all your assets, it may dismiss your case and the creditors may continue the process of collection before you filed for bankruptcy. Worse, you may be charged and prosecuted for fraud.
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