'Chapter 7 Bankruptcy' is explained in detail and with examples in the Accounting edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Chapter 7 bankruptcy is a form of protection from creditors. Unlike Chapter 13 bankruptcy, it does not have any repayment plan. In the Chapter 7 a bankruptcy trustee determines what eligible assets the debtor individual or company has. The trustee then collects these available assets, sells them, and distributes proceeds to the creditors against their debts. This is all done under the rules of the Bankruptcy Code.
Debtors are permitted to keep specific property that is exempt, such as their house. Other property that the debtor holds will be mortgaged or have liens put against it to pledge it to the various creditors until it is liquidated. Debtors who file chapter 7 will likely forfeit property in partial payment of debts.
Chapter 7 bankruptcy is available to corporations, partnerships, and individuals who pass a means test. The relief can be granted whether or not the debtor is ruled to be insolvent.
Chapter 7 bankruptcy cases start when debtors file their petitions with their particular area’s bankruptcy court. For businesses, they use the address where the main office is located. Debtors are required to give the court information that includes schedules of current expenditures and income and liabilities and assets.
They are also required to furnish a financial affairs statement and a schedule of contracts and leases which are not expired. The debtors will also have to deliver the trustee tax return copies from the most current tax year along with any tax returns which they file while the case is ongoing.
Debtors who are individuals also have to furnish their court with other documents. They are required to file a credit counseling certificate and any repayment plan created there. They must also file proof of income from employers 60 days before their original filing, a monthly income statement along with expected increases in either, and notice of interest they have in tuition or state education accounts. Husbands and wives are allowed to file individually or jointly. They must abide by the requirements for individual debtors either way.
The courts are required to charge debtors who file $335 in filing, administrative, and trustee fees. Debtors typically pay these when they file to the clerk of court. The court can give permission for individuals to pay by installments instead. When the income of debtor’s proves to be less than 150% of the amount of the poverty level, the court can choose to drop the fee requirements.
Debtors will have to provide a great amount of information in order to complete their Chapter 7 filing and receive a discharge of debts. They have to list out each of their creditors along with the amounts they owe then and the type of claim. Debtors have to furnish a list of all property the own. They must also give the information on the amount, source, and frequency of income they have to the court.
Finally, they will be required to provide an in depth list of all monthly living expenses that includes housing, utilities, food, transportation, clothing, medicine, and taxes. This helps the court to determine if the debtor is able to set up a repayment plan instead of discharging the debts.
From 21 to 40 days after the debtor files the petition with the courts, the trustee hosts a creditors’ meeting. The debtor will have to cooperate with the trustee on any requests for additional financial documents or records. At this meeting, the trustee will ask questions to make sure the debtor is fully aware of the consequences of debt discharge by the bankruptcy court. Sometimes trustees will deliver this in written form to the debtor before or at the meeting. Assuming the trustee makes the recommendation for discharge, the Federal bankruptcy court judge will discharge the debts when the process is completed.