Selling Assets to Pay Off Debt
The term “Chapter 7” is a reference to the process that allows a debtor, who cannot repay their debt, to file for bankruptcy protection, and have their assets liquidated to assist in the repayment of their debt.
This is one of the types of bankruptcy protection found within the United States Bankruptcy Code, or the set of laws that deal with bankruptcy.
Chapter 7 is different than other commonly known chapters of bankruptcy protection such as Chapter 13, in that when filing for Chapter 13 bankruptcy protection, one’s debt is reorganized and not sold.
Chapter 7 is the bankruptcy protection type that is most frequently filed in the United States.
Who Is Eligible for Chapter 7?
Chapter 7 can be filed by both businesses or individuals who are inundated with debt and unable to pay back their creditors.
A specially designated government representative, called a United States Trustee, is required to investigate any Chapter 7 bankruptcy protection filing to determine whether the one filing for bankruptcy is in fact unable to pay back their debts or not.
This could effect whether the filing for bankruptcy will be accepted, or whether the individual will receive a discharge for any of the debts.
The Process of Chapter 7
Individuals must file for Chapter 7 in a federal bankruptcy court.
When filing for Chapter 7 bankruptcy protection, an individual first has to file a petition and present the court with a list of all their assets, along with how much income they earn.
If an individual’s estate contains exempt property, the individual is allowed to retain that property while going through the bankruptcy process.
After Chapter 7 is Filed
Some debts are discharged when an individual files for Chapter 7 bankruptcy protection, while others are not.
A trustee is appointed to oversee the properties that may or will get sold through the bankruptcy process. They are also responsible for distributing the funds that are procured through the sale, to the respective creditors.
When someone files for Chapter 7 bankruptcy protection, the filing is kept on the person’s credit report for 10 years. This is longer than other types of bankruptcy filings such as Chapter 13, which is only kept in credit histories for 7 years.