Chapter 7 Bankruptcy: What is it?



By:Mike Cibik

Chapter 7 Bankruptcy

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


Chapter 7 bankruptcy is most commonly used for businesses and individuals.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 is applicable 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 debts 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 discharge 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 businesses will shut down, unless continued by the Chapter 7 trustee. 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 certain 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. Assets that are not exempt are sold by a Chapter 7 trustee and then liquid capital is used to pay creditors.


Many types of debt can be discharged by Chapter 7, however, not every type is. Common exceptions to debt discharges include child support, income taxes less than 3 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.


When considering filing bankruptcy there are a number of 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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