All business owners must be prepared for inevitable cases of financial struggles and monthly income losses. Due to these unforeseen situations, you are unable to pay off your financial obligations. Thus, filing for bankruptcy might be your only option to pursue debt repayment. Bankrupt debtors who are struggling with debt want to pay all the money they owe to have a fresh start. This is also a great opportunity to restructure your finances, rebuild your credit, and stay out of debt.
Among the different types of bankruptcy, Chapter 7 is considered the most conventional chapter in the United States. It’s the quickest, simplest, and most common type of bankruptcy. In this bankruptcy chapter, you can pay off your debts by means of liquidation of assets. A reliable Aurora Chicago bankruptcy attorney can help you understand how Chapter 7 bankruptcy can solve your financial dilemma.
This article will give you an overview of how Chapter 7 bankruptcy works by answering the following questions:
- When Do I File Chapter 7 Bankruptcy?
- How Do I File Chapter 7 Bankruptcy?
- Can Chapter 7 Bankruptcy Wipe Out All My Debts?
- What is Liquidation Bankruptcy?
- What Happens to My Assets During the Liquidation Process?
- Can I Keep My Property If I File for Bankruptcy Chapter 7?
- What Happens After a Bankruptcy Discharge?
- What is the Role of a Bankruptcy Attorney?
When Do I File Chapter 7 Bankruptcy?
There are several factors that you need to consider in filing Chapter 7 bankruptcy. The following signs can indicate that Chapter 7 may be the right solution for you:
- Your monthly income is below the median level in your state.
- You have little to no disposable income.
- Your debts amount to more than half your annual income.
- It would take five years (or more) to pay your debts.
How Do I File Chapter 7 Bankruptcy?
Filing the bankruptcy petition will gger an “automatic stay,’’ which means a creditor can’t pursue lawsuits, garnish your wages or contact you about you debts. If you’re qualified, it will take 4-6 months to complete the bankruptcy process. Here are the steps you must take when filing for bankruptcy:
- Choose the best bankruptcy chapter for you
- Prepare all necessary financial documents
- Take a credit counseling courseFill out the official bankruptcy forms and file a complete paperwork
- Appoint a bankruptcy trustee (done by the court)
- Attend the 341 creditors’ meeting
- File a debtor’s education course certificate
- Receive your debt discharge
Can Chapter 7 Bankruptcy Wipe Out All My Debts?
Chapter 7 bankruptcy can wipe out many forms of overwhelming debt under the protection of a federal court. You may have to give up some assets, like an expensive car or property. However, bankruptcy doesn’t automatically imply that you will lose all the assets that you own.
Chapter 7 bankruptcy erases most unsecured debts like medical bills, credit card debt, and personal loans. However, some forms of debt, such as back taxes, court judgments, alimony and child support, and student loans generally aren’t eligible. Chapter 7 bankruptcy will leave a serious mark on your credit reports for 10 years. Even so, you’ll probably see your credit scores start to recover in the months after you file.
What is Liquidation Bankruptcy?
The Chapter 7 bankruptcy or liquidation bankruptcy is the most commonly filed bankruptcy type for individuals. The term liquidation bankruptcy comes from the fact that the bankruptcy trustee assigned to the case sells or “liquidates” property for the benefit of creditors.
Before you can determine whether your property can be protected under bankruptcy exemptions in the federal Bankruptcy Code, you need to make a list of your personal or company assets. In the context of Chapter 7 bankruptcy, both physical property and intangible property that can be sold for the benefit of your lender are considered an asset. In this case, Chapter 7 wouldn’t be a good option unless you are willing to give up some of the assets of the company and undergo the process of liquidation. A qualified Aurora Chicago bankruptcy attorney can help you determine the assets that you can protect from being liquidated.
Liquidating assets means converting some or all assets or property into cash. You can sell off personal or business assets on the open market. It happens when a company has decided to close down and the assets will be distributed to claimants. It may be either voluntary or forced.
- Voluntary Liquidation – Shareholders of a company may elect to liquidate a solvent company or the directors of an insolvent company may choose to cease further trading and liquidate its assets in order to repay its creditors. It is a self-imposed wind-up and dissolution of a company that has been voluntarily approved by its shareholders.
- Forced Liquidation – It entails the involuntary sale of assets or securities to create liquidity in the event of an uncontrollable or unforeseen situation. In this process, you will be forced to liquidate your assets. It can occur within an investor’s margin account if the investor fails to bring their account above the minimum requirements after being issued a margin call.
What Happens to My Assets During the Liquidation Process?
Assets are distributed based on the order of priority, with a bankruptcy trustee appointed by the U.S. Department of Justice overseeing the process. The trustee will be distributing the assets to the classes of claimants in this order:
- Secured Creditors – these are creditors who have collateral on loans to the business. These lenders will seize the collateral and sell it—often at a significant discount, due to the short time frames involved. If that does not cover the debt, they will recoup the balance from the company liquidation.
- Unsecured creditors – include bondholders, the government (if it is owed taxes), and employees (if they are owed unpaid wages or other obligations)
- Shareholders – Stockholders receive any remaining company assets. In such cases, investors in preferred stock have priority over a shareholder of common stock.
Can I Keep My Property If I File for Bankruptcy Chapter 7?
The Bankruptcy Code has rules called “exemptions” that allow you to keep several types of property (such as cash, clothes, furniture, cars) up to a certain amount, known as “exemption limits.”
The specific exemptions you can use to keep your property depend on your state. Many states have “wildcard exemptions” that allow you to keep any property as long as it’s worth less than a certain amount. If your property value exceeds the exemption limit that applies, the trustees may seize the property and sell it to pay back your creditors. This is why people call Chapter 7 liquidation bankruptcy. A property that isn’t protected by exemptions is considered “nonexempt property.” The most common forms of nonexempt property are expensive cars and homes.
What Happens After a Bankruptcy Discharge?
The court will issue the bankruptcy discharge. After completing the requirements, the court will grant a bankruptcy discharge and the automatic stay will end. Shortly after issuing the discharge order, the court will close your case unless the trustee hasn’t distributed all non-exempt assets, or if you’re involved in bankruptcy litigation.
After receiving a bankruptcy discharge, you’ll need to focus more on how to rebuild your credit and recover your financial distress and losses. Having many debts resolved gives you a good starting point. Here are some of the tips on how to rebuild and recover after being discharged:
- Make a financial plan – build a budget and create financial goals
- Restore your credit – make all payments on time, keep your credit balances low, and dispute mistakes on your credit reports
What is the Role of a Bankruptcy Attorney?
Bankruptcy is a long and complex process. It is important to know and understand the bankruptcy rules to ensure the success of your bankruptcy case. For legal help in your bankruptcy filing, do not hesitate to consult our competent Aurora Chicago bankruptcy attorneys at Cutler Bankruptcy. Our lawyers will review your bankruptcy case, explore available debt-relief options, file your paperwork, and represent you when your case goes to the bankruptcy court. We will help you protect your assets from debt collectors and find a way to free you from financial responsibilities.