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What is Chapter 7 Bankruptcy?
Before we get into a discussion about Chapter 7 Bankruptcy, it is useful to know the broader context of the different types or "chapters" of bankruptcy. The term "chapter" in this context refers to the subsections of Title 11 of the United States Code. The most common form of bankruptcy in the United States is Chapter 7, which is also sometimes referred to as the straight or liquidation bankruptcy. It is referred to as a liquidation bankruptcy because unlike every other chapter under Title 11, Chapter 7 bankruptcy does not propose any plan of debt reorganization. Chapter 7 proposes that in exchange for a discharge of all dischargeable debt, the Debtor will surrender all of his or her non-exempt property to the Chapter 7 bankruptcy trustee. The trustee will then liquidate all of that non-exempt property. A common form of liquidation by the trustee is to auction off the property. Then the trustee will distribute the funds from the liquidation to the creditors to offset their losses.
IS CHAPTER 7 RIGHT FOR ME?
So, is Chapter 7 bankruptcy right for you? Well, that depends. While Chapter 7 is a powerful tool, it might not be the right tool. There simply are things that a Chapter 7 bankruptcy just cannot accomplish. For example, if you are behind on your mortgage and you want to keep your house, then Chapter 7 is probably not for you. By filing Chapter 7 bankruptcy you may be able to get rid of your unsecured credit cards and medical bills, but it will not bring you current on the amount you are behind on your mortgage. To solve your arrearage problem, you would need to file one of the "reorganization chapters" of bankruptcy, most commonly Chapter 13.
In addition to the arrearage problem, there are a host of other considerations that you will want to consider when deciding if chapter 7 is right for you. You will want to review your priority debts and whether or not you will be able to manage these debts after your bankruptcy is finished and you no longer have the protection of the automatic stay.
Also, when designing the bankruptcy code, the U.S. Congress sought to encourage debt reorganization vs. liquidation, and as an incentive they made certain debts that are not dischargeable in Chapter 7 dischargeable under Chapter 13. For example, in some circumstances, debts resulting from property division in a divorce in a divorce may be dischargeable under Chapter 13. However, such a debt is not ever dischargeable under a Chapter 7 bankruptcy. As a side note, there is a a critical distinction between a property division obligation and a domestic support obligation. But, that is a topic for a different article on a different day.
Regardless, filing bankruptcy is so much more than filling out forms. It requires a firm grasp of the different types of bankruptcy, their effects, and how to strategically use them. When considering bankruptcy relief, you owe it to yourself to seek out the assistance of an experienced Topeka bankruptcy lawyer.