Recent Statistics show that personal bankruptcy filings are increasing day by day. Since debt is a common problem in the U.S., filing bankruptcy is also inevitable. This article focuses on the pros & cons of Chapter 7 Bankruptcy.
Background: The first official bankruptcy law was enacted in 1800. Bankruptcy Reform Act was enacted by Congress in 1978. The bankruptcy Code, known as title 11 of the United States Code, had several amendments. The main objective of modern bankruptcy laws and practices in the United States is to reorganize debtors in financial trouble.
Definition: Chapter 7 of the Bankruptcy Code provides for liquidation proceedings to be administered by the bankruptcy cell of the district courts. This means that debtors turns over all non exempt property to a case trustee assigned by the court. The case trustee then sells & converts all the properties to cash & pays back the creditors.
Sub Chapters: Chapter 7 bankruptcy is subdivided into 5 sub chapters:
•Subchapter 1: Defines the election procedures & duties of a trustee & creditors Committee.
•Subchapter 2: Describes the relevant provisions on Collection, Liquidation and distribution of the estate, treatment of certain liens, and disposition of certain properties.
•Subchapter 3: Describes the relevant provisions on Stockbroker liquidation.
•Subchapter 4: Describes the relevant provisions on Commodity broker liquidation.
•Subchapter 5: Describes the relevant provisions on Clearing Bank liquidation.
Who can qualify for Chapter 7: Chapter 7 bankruptcy can be filed by any one,
1.who is a resident of USA
2.who has a business or property in U.S.
Who can not qualify for Chapter 7: Chapter 7 bankruptcy can not be filed by any person,
1.who has been granted debt discharge by Chapter 7 within the last 6 years.
2.who has completed a repayment plan under Chapter 13
3.whose bankruptcy filing was dismissed for cause within the last 180 days.
4.who tries to hide, transfer or destroy his properties in order to defraud his or her creditors or the court trustee assigned in the chapter 7 case.
5.who is not truthful about his financial condition or business transactions.
6.who defies the orders of bankruptcy court or doesn't answer questions asked to him.
Debts not considered under Chapter 7: Not all debts are dischargeable by Chapter 7 bankruptcy. Here is a listing of the debts that are not considered under Chapter 7,
•Child support
•Taxes
•Liability for injury or death caused from driving in an intoxicated state.
•Student loans
•Criminal fines or penalties
•Non-dischargeable debts incurred from a previous bankruptcy.
Who are involved in Chapter 7 Bankruptcy Procedure? To be on the safe side it is always better to know the people who take part in the bankruptcy procedure. Apart from the debtor the following parties are involved in the proceedings,
1.Creditors: Anyone claiming that the debtor owes money to them.
2.Court trustee: Responsible for administering the proceedings.
3.Bankruptcy Judge: Presides over any hearing & takes control of any disputes related with the case.
Bankruptcy Chapter 7 can do the following: Chapter 7 can help debtors to achieve the following,
1.Stop Collector harassment: After filing bankruptcy under Chapter 7, the court usually notifies your creditors. The collectors can not keep on calling or contacting you after this. However, if this continues, the Creditor may have to take up the liability for court sanctions & attorney fees.
2.Stops foreclosure: Chapter 7 filing allows one to prolong a foreclosure of agreement for home mortgage, until the discharge from bankruptcy is received. The lender can also apply to the Court & request for relief from automatic stay. The best way however is to make a personal deal with the lender to keep such assets.
3.Removes lien: There are provisions for removal of certain liens under Chapter 7 bankruptcy. However, bankruptcy court order is needed for such removal. Under Chapter 7 one can get rid of debts for federal income taxes only if the following conditions are met:
◦No tax lien is recorded against your property by IRS.
◦The tax return must be due for at least 3 years.
◦The tax return should have been filed at least two years prior to the filing of bankruptcy.
◦There should not be any record of fraudulent activities on your part.
◦You should not have records of skipping tax payments.
◦You should have received a copy of your tax assessment at least 240 days before filing bankruptcy.
4.Removes Community Debts: This is applicable for divorcees. Removal of dischargeable community debt, however, doesn't mean that you are cleared of the debts. This implies that the debt is transferred from your account to your ex-spouse's account.
Restrictions of Bankruptcy Chapter 7: No matter how harsh the consequences, bankruptcy may come, in the long run, but there are certain restrictions to this procedure. Two of these restrictions are worth mentioning,
1.Immediate Job loss: According to bankruptcy laws, debtors applying for protection under bankruptcy can not be sacked from jobs on this pretext. This kind of discrimination is however prohibited by U.S. Code, Sec. 525. Employers are also not notified legally about this. However this is not applicable if your creditor is your employer.
2.Put you into jail: Chapter 7 bankruptcy filing can in no way cause imprisonment and put debtors behind the bars.
Filing of bankruptcy is a serious financial decision & needs to be taken with a lot of caution. To put the best foot forward is to know every nook & corner of the chapters. So that it becomes easier for the debtor to know which way to go. But it is always advisable to consult an attorney to know more about the complicated areas.
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