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Bankruptcy Under Chapter 7

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Submitted By rolyr93
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Bankruptcy Under Chapter 7
Introduction
Bankruptcy under chapter 7 in the United States was crafted to ensure the liquidation process is carried out in a procedural manner without subjecting unnecessary losses to other businesses. The bankruptcy code for liquidation states that, in case of businesses inability to fulfill its creditors’ obligations, the debtors assets shall be sold nonexempt and the proceeds from the sale distributed to the creditors. There are various notes, which govern the execution bankruptcy case under chapter 7. The monthly current income which is received by the debtor in reference to bankruptcy code is defined as the average monthly income which is received on average over the last six months prior to commencement of the bankruptcy case. This average income includes contributions directed towards household expenses received from non-debtors which includes debtors’ spouse when the petition if filed jointly. However, this note does not include any proceeds and income received by the debtor from social security income as well as certain payments made due to the debtor been a victim of certain crimes (United States Courts 1).
In order to determine whether a presumption of any kind of abuse arises, every debt that holds a consumer debt and files a bankruptcy case under chapter 7 is statutory required to complete an official bankruptcy form B22A. This is a vital and indispensable document for use in the case known as “Statement of Current Monthly Income and Means Test Calculation” and forms the case of bankruptcy under chapter 7. A bankruptcy case under chapter 7 may also be commenced in various circumstances especially a petition filed by creditors who hold unclear dues and claims against the debtor. However, when the bankruptcy case commences in a joint petition (husband and wife), either can claim for an exemption allowed under the federal bankruptcy laws. Lastly, chapter 7 states that, any unsecured debts may be generally be defined as those which were in their initial stages and extensions by the creditor were purely based upon creditor’s evaluation. If the creditor was convinced at the time of advancing the credit, that the debtor is able and creditworthiness to pay as opposed to any unsecured debts which were relied upon during credit extension. This is despite the fact that the extension was largely guided by the creditor’s rights of seizure of collateral upon default notwithstanding the debtor’s ability to pay. Background of chapter 7
This chapter is different from any petition as stated in chapter 13 filed involving filing of any plan of repayment of any debt. Instead, the parties especially the bankruptcy trustee is responsible for gathering and disposing through the sale of the entire debtor’s nonexempt properties and assets. The proceeds from the sale of such assets are used to pay the creditors as guided by provisions of the bankruptcy code. However in certain cases, part of debtor’s properties and assets may be subject to mortgages and liens that pledge the asset and properties to other creditors. In such cases, the bankruptcy code may allow the debtor to retain certain “exempt” assets and properties. In this case, the trustee is also mandated to liquidate all the other remaining properties and assets to settle the remaining creditors. Accordingly, all the debtors should have the knowledge and realization that when filing any bankruptcy case under chapter 7 may result entirely to lass of property (United States Courts 1). Alternatives to chapter 7
Debtors should be made aware of all reliefs that exist with relation to chapter 7. For instance, any debtor who is in a corporation, engaged in a sole proprietorship or a partnership may prefer to remain as part of the business in order to avoid any liquidation. In such cases, debtors may prefer to file bankruptcy under chapter 11 of the bankruptcy code. In this chapter, the debtor is allowed various adjustments, which may be convenient to him as well as his business. Chapter 11 allows the debtor to make credit adjustment either by extending the repayment period or other plans to repay the debt. Another alternative under this chapter available to the debtor is credit reorganization, which is a relief more than liquidation. If a debtor is in a sole proprietorship form of business, chapter 13 allows for bankruptcy filing for this business entity with various reliefs better to the debtor compared to code in chapter 7. Another relief includes reorganization of a debt with debtors who have regular and guaranteed incomes as provided in chapter 13 bankruptcy code (United States Courts 1). Unlike other chapters dealing with bankruptcy, chapter 7 is stricter with well defined conditions with little room for flexibility and bankruptcy for the debtor. It also safeguards against creditors’ loss of revenue and resources in case of default by the debtor. In conclusion to the reliefs available for the debtor under the bankruptcy code as stipulated under chapter 7, out of court debt settlement with between the two parties is acceptable and easy process that saves both resources and time. Bankruptcy Code for Businesses Filing Bankruptcy under Chapter 7
When a business experiences troubled financial positions especially in its cash flow statement and entirely unable to fulfill its financial obligations, it may file for bankruptcy. This situation, may also be necessitated by creditors for the business when it fails to meet its agreed financial terms with creditors in the high court for arbitration under chapter 7. When this clause is operation, it means that any business affected ceases with any operation unless chapter 7 trustees continue with its operations. The chapter 7 is in most cases appointed immediately and bestowed with all the powers to assess and report the financial affairs of the business. The main responsibility of the trustee is to dispose all the assets and properties of the business through sale and distributes the proceeds realized to the business creditors. Under these circumstances, the business employees may entire or partly lose their jobs in the process of chapter 7 trustee management. When a large corporation enter liquidation under chapter 7 of bankruptcy, an entire division or department or branch of the company may be holistically be sold to other companies (David 43).
When chapter 7 of bankruptcy is enforced, fully secured creditors like the collateralized bondholders as well as mortgage lenders are under law posses’ enforceable rights with respect to the collateral in securing the loan. They are either guaranteed by an equal value with a legal right which cannot even be defeated by terms of bankruptcy in operation. For a creditor to be fully secured, the value of the collateral advanced for loan purposes should at least exceed the amount of the debt in consideration. For this specific reason, therefore all the fully secured creditors in case of liquidation of the business are not permitted to participate and benefit from any proceeds accruing from disposal of assets by the bankruptcy trustee. A corporation or a partnership business under chapter 7 bankruptcy case, the entity is totally dissolved instead of receiving a bankruptcy discharge. As will be discussed below, only a sole proprietorship business or an individual can receive a bankruptcy discharge. Once all assets owned by the partnership or corporation are fully administered accordingly, the bankruptcy case is closed. Lastly all the debts owed by the corporation continue in existence theoretically until all applicable statutory periods as stipulated with their limitation expire (United States Courts 1).

Bankruptcy Code for Individuals Filing Bankruptcy under Chapter 7
All individuals who are residents, own property or a have a business in United States are entitled to file bankruptcy under chapter 7 in any federal court. This may be in the form of a straight bankruptcy or a liquidation process. Under chapter 7, any individual who had any bankruptcy cases and dismissed within a period 180 days does not qualify under specified circumstances. Individuals are allowed to retain and keep certain exempt properties under chapter 7. In most cases, properties like mortgages, real estates and security interests for car loans survive in this chapter. However, bankruptcy code under chapter 7 varies from state to state especially with regard to exempts and value of property claimed. Under an individual, chapter 7 establishes an interim trustee which is responsible for liquidating the assets and properties of an individual to repay all the creditors accordingly. There are many unsecured debts that are legally discharged by the bankruptcy proceeding while others are not. Among the common exceptions to the bankruptcy discharge include child support, property taxes, income taxes which are less than three years old, fines and restitution, which are imposed by any court with regard to any crime committed by the debtor and finally students’ loans are exempt. Other exemptions from bankruptcy proceeding include spousal support and property settlement in divorce. However, despite their potential non-dischargeability, its statutory requirement that all property and debts be listed on all bankruptcy schedules (Stephen and Robin 14).
United States bankruptcy under chapter 7 stipulates that, an individual’s credit is maintained on record for 10 years from the date chapter 7 petition is filed. In comparison to chapter 13 on bankruptcy, an individual’s record stays on record for a period of 7 years since the date of filing chapter 13 petitions. Petitioners under chapter 7 on bankruptcy code have been held as more aggressive among the United States trustee in pursuing abusive chapter 7 filings. Factors considered in filing bankruptcy under chapter 7 include the likelihood of achieving chapter 7 discharge or the creditworthiness of an individual. The importance and significance attached to creditworthiness is sometimes overemphasized. This is observed and witnessed since by the time majority of debtors are ready and willing to file bankruptcy, their credit scores are totally ruined. In addition, new credit which is extended post-petition is not usually covered by any component of the discharge; therefore creditors are free and may offer new credits to all newly bankrupt (United States Courts 1).

Pros and Cons of Bankruptcy Under Chapter 7
It’s obvious and a matter of general knowledge that declaring for bankruptcy under any circumstance is an extremely difficult and bold decision to take. The decision has far reaching repercussions both to business and personal life from every perspective. The following section will analyze various pros of bankruptcy under chapter 7. Though bankruptcy will exist in your records for considerably long periods of time, the trade-off achieved from bankruptcy is freedom to deal with various debts, which would have been an uphill task or an individual or a business to deal with. Secondly, most States allow various exemptions on personal properties, which are more than enough for personal coverage. This allows an individual to retain all the properties and salaries earned after chapter 7 petition. Thirdly, although poor credit cards may have gotten an individual or a business in such a situation, it is possible to obtain credit after sometime like three years although at much higher interest rates. An individual or a business that has witnessed bankruptcy can take an advantage of those lenders who characterize in lending to ‘bad risks’ (Legal Aid Queensland 2).
Declaring bankruptcy is another opportunity which offers a person or a business get started sooner and even build credit once again. Although chapter 7 allows filling of bankruptcy once every six years, there is a provision to file bankruptcy repeatedly under chapter 13 which is soft although each time will appear on the record. Bankruptcy filing will save ones child support and family alimony obligations. This alleviate various other financial obligations hence some financial freedom. Lastly, if bankruptcy filed under chapter 7 bars one for ten years and a relief obtained under chapter 13 stands, an individual or a business meeting 70 percent of his debt obligations may not undergo the 10 years bar. This improves the credit rating and future relationship with creditors (Legal Aid Queensland 4). The following analysis shall involve various cons of filing bankruptcy under chapter 7.

Cons of filing Bankruptcy under Chapter 7
Filing for bankruptcy especially under chapter 7 ruins the credit rating of an individual or a business which remains on record for a period of up to 10 years. Secondly, there is loss of property and assets that are not exempt from the sale as stipulated by the bankruptcy trustee. This may result from loss of luxurious possessions, which is a painful experience. When bankruptcy is filed, an organization or an individual loses all their credit cards. Filing for bankruptcy under any circumstance will result to impossibilities of securing a mortgage in the future. When bankruptcy is filed, an individual neither is nor relieved off payment of child support and obligations of family alimony as well your students’ loan debt. To receive a relief to any debt, a person or a business filing for bankruptcy will have to explain satisfactorily to a judge and the trustee reasons and circumstances surrounding such a massive debt. Lastly, if bankruptcy is filed under chapter 7 with a substantial amount of income, the court has authority to convert the case to apply under chapter 13 hence changing ones plan of being free from six months to three years (Stephen and Robin 19).

Repercussions of Being Declared Bankrupt
When declared bankrupt, an individual or a business loses its creditworthiness even when dealing with other corporate and businesses. It becomes offense when such a person deals in a certain amount of money without informing the other party that he is undischarged bankrupt. When an individual is declared bankrupt, his status adversely affects his employment prospects where one cannot work in certain industries like security, police force and the military. Upon declaration of bankruptcy, an individual or a business is statutory required to notify to the trustee of any change in address and name. Individuals who are bankrupt especially under chapter 7 are required to obtain written permission from the court or a trustee before embarking on an overseas travels (Legal Aid Queensland 5).

Conclusion Bankruptcy is a concept where a business or an individual is declared uncreditworthness and unable to meet credit obligations by a federal court. Bankruptcy in United States is guided and stipulated by various chapter especially chapter 7, chapter 11 and chapter 13. Filing for bankruptcy is either done voluntary by the affected party or creditors. In their push creditors hope to recover their debts especially the collateral secured creditors. When a bankruptcy case is handled under chapter 7, a trustee is immediately formed to ensure creditors are compensated through disposal of an individual’s or company’s assets. However, when bankruptcy is arbitrated under chapter 7, an individual is protected from family alimony and children upkeep. An individual after successfully filing for bankruptcy is exempted from further deductions from his new income and disposal of any other asset he may acquired after the process is complete. Chapter 7 have long periods of credit warn up to 10 years while other chapters like 13 and eleven are more lenient with credit rating of 6 years. Under chapter 7 as discussed above, an individual or a business can only file bankrupt case once after ever six years unlike in other chapters where it can be more frequent.

Work Cited
David, Buchbinder, Basic Bankruptcy Law for Paralegals, New York: NY, Aspen Publishers Online, 2008. Print
Legal Aid Queensland, The Consequences of Individual and Business Bankruptcy, Retrieved on 5th November, 2012 from: http://www.qpilch.org.au/_dbase_upl/Bankruptcy.pdf
Stephen, Elias and Robin, Leonard, How to File Chapter 7 Bankruptcy, New York: NY, Nolo Publishers, 2011, Print
United States Courts, Liquidation Under Bankruptcy Code, Retrieved on 5th November, 2012 from: http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx

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