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Chapter 7 Bankruptcy: What Is It and How Do you Know When To File?

filing-for-chapter-7-bankruptcy

Nov,21,2017

By:Mike Cibik

 

Chapter 7 Bankruptcy

Are you stuck in debt and unaware of how to pull yourself out? Learn more about how to file for Chapter 7 Bankruptcy.

 

There are three common forms of declaring a bankruptcy: Chapter 7, Chapter 11 and Chapter 13.

 

Businesses and individuals most commonly use chapter 7 bankruptcy. Chapter 7 bankruptcy allows a debtor to get rid of their debts and start over. The most identifiable characteristic of Chapter 7 Bankruptcy is that it is a liquidation of assets, versus Chapter 11 or Chapter 13, which are each a reorganization of assets.

 

Chapter 7 applies to both businesses and individuals; however, they are handled differently for each.

 

Why Should I File For Chapter 7?

By filing for Chapter 7, it means that the debtor is now no longer responsible for repaying the debt of the company. The debtor will receive a fresh start from most of their obligations and will be able to keep their future income after filing for Chapter 7 without having to set up a repayment plan. The discharge of debt occurs rather quickly as individuals may see their release as early as three months after approval and the case is closed.

 

For Businesses

For businesses (LLCs) that are badly in debt, a Chapter 7 bankruptcy means that the entire companies will shut down unless continued by the Chapter 7 trustee. A Chapter 7 trustee’s duty is to oversee and monitor all that is occurring in your case. The trustee is appointed very quickly and is tasked with examining a business’ financial affairs, dealings, and standing. The trustee will then liquidate assets and distribute the liquid capital to creditors because exemptions are not made available to business bankruptcy.

 

Sometimes, this means that all employees will be forced to lose their jobs, for larger businesses. However, entire sections of the company can be sold off to other employers for profit. It is now the bankruptcy trustee’s responsibility to handle all of the distribution of proceeds to creditors, as the actions following bankruptcy will be determined based on if the company was a sole proprietorship, partnership, or a corporate entity.

 

In Chapter 7, a corporation does not receive a bankruptcy discharge; the entity is dissolved instead.

 

For Individuals

Individuals who file for Chapter 7 are allowed to keep the specific exempt property. State regulations vary widely on what can and cannot be deemed exempt property. An experienced bankruptcy attorney can help determine what can be ruled exempt. A Chapter 7 trustee sells assets that are not exempt and then liquid capital is used to pay creditors.

 

Many types of debt can be discharged by Chapter 7, however, not every type is. Standard exceptions to debt discharges include child support, income taxes less than three years old, some student loans, restitution for any crimes committed and other types of debt.

 

Chapter 7 bankruptcy can stay on a credit report for up to a decade, however, some who file find that to be less detrimental than the outstanding debts they had.

 

At Cibik & Cataldo, P.C., no financial decision is ever taken lightly. Your livelihood depends on your money, and debt can get in the way. Declaring Chapter 7 bankruptcy is a tough decision; our attorneys never try to pressure anyone into making a decision. 

 

When considering filing bankruptcy, there are some factors to consider. However daunting debt may seem, the dedicated attorneys at Cibik & Cataldo P.C. can help determine the best course of action to move forward from the debt that holds a business or individual back. To learn more or schedule a free consultation, contact our legal team today at (215) 735-1060.

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