Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common and fastest form of filing for bankruptcy. It is primarily meant for consumers with unsecured debts like personal loans and medical bills. Filing for chapter 7 predisposes one to the liquidation of assets.
The law permits a court-appointed trustee to sell your assets and distribute the net income obtained from the sales to all creditors in line with the established list of priorities. This will lead to the debtor being discharged off their liability for most or all of their debts. However, this is only possible if an exemption does not protect the debtors' assets.
Chapter 7 bankruptcy is not automatic and a person's eligibility to file chapter 7 is determined by the means test instituted by the bankruptcy code, which states that the debtor means test is calculated by comparing the debtor's net income for the past half a year, the calculated average income of the debtor based on his place of residence. If the debtor's income is less than or equal to the state median income, the debtor qualifies the means test on the first try and can file for chapter 7. High earners are not eligible for chapter 7 especially if their debts are considered consumer debts.
Filing for chapter 7 starts with filing for an official petition, schedules and the statements of financial affairs. These forms allow you to list all of your assets, your total debts, and your recent financial history, which is majorly within the past six months. The debtor is entitled to list in schedules all his creditors and the exact amount of debts that they owe them. It is advisable for the debtor to list even the non-dischargeable debt and if he/she has intentions of reaffirming these debts. Another one of the forms is used to list all the debtor's properties, any debts that the properties may have been used against as security, the sale value of the assets, and the debtor's real estates.
Your choices of exemptions are made on one of the lists. These lists are signed under penalty of perjury, which states that a person convicted of perjury under federal law may face up to five years' jail term and fines. Perjury punishment varies from one state to another, and though it is a felony, it carries a one-year prison sentence plus fines and probation in some states.
Giving out a false and inaccurate list can bar you from getting a discharge. The bankruptcy clerk in the district often fills the list that you live in or have lived for the last 180 days. The rights of both the debtor and the creditor are those that exist from the day the case is filed. The automatic stay takes effects immediately the filing of a petition is made, and it prohibits any collection actions from creditors. Once the debtor files for chapter 7, the court sends a notification to all the indicated creditors to alert them to stop any collection unless otherwise.