While nobody wants to enter into a situation in which they are forced to file for bankruptcy, it can be a liberating option for those stuck in financial woes with no other way out. One form of bankruptcy is known as Chapter 7 and has been helpful for many individuals and families suffering from a financial crisis. Chapter 7 bankruptcy is most commonly referred to as straight bankruptcy, and is the stereotypical image of bankruptcy that generally comes to mind.
A Chapter 7 bankruptcy is used by individuals or corporations who have accrued enormous amounts of debt and have no way of paying that debt. There are certain possessions and items of property that the bankrupt individual is allowed to keep, referred to as exemptions, but otherwise all other property or holdings are liquidated and the funds used to pay back some of the debts to creditors. The rest of the debt is cancelled by the bankruptcy court.
Once a person has filed for bankruptcy, the courts put into effect an “automatic stay.” This prevents creditors from taking money from income or any property while the bankruptcy claim is reviewed and the court comes to a decision. Creditors are unable to garnish wages or seize any property until a decision has been made on the case.
The other side of this coin is that the bankrupt individual is unable to sell any of their property or try and pay off any debts while the court is reviewing their case. In effect, all financial holdings are under the jurisdiction of the bankruptcy court until it comes to a decision. A trustee is appointed to the case to handle the distribution of property. Once the bankruptcy claim is accepted, all non-exempt property is handed over to the bankruptcy court and distributed to the creditors, and the individual gets essentially a fresh start.
To learn more about Chapter 7 bankruptcy, how to file, and what the benefits and drawbacks are, contact Brock and Stout Attorneys at Law.