Chapter 7 Bankruptcy Basics
When you hear news about companies in bankruptcy, you are sure to encounter Chapters. One of these is Chapter 7, a least known yet existing option of corporate bankruptcy.
Find out more about this chapter of bankruptcy: its provisions, its process and what you can expect when you file for chapter 7 bankruptcy.
Sometimes it happens that a company has to file for bankruptcy. This happens for a variety of reasons; one could be that the market is so negatively volatile for the business that they cannot raise enough money anymore to pay off their financial obligations to their creditors. That’s what the bankruptcy law is for: to help companies avoid being swamped with debts and help protect them from being swallowed by their debts, as long as they have the proof that they can no longer raise enough money to pay them off and would require some slack.
Bankruptcy laws are not designed to help companies run away from debt. They are merely to help make the process of payout easier for both the companies and the creditors.
One such chapter under bankruptcy law is Chapter 7. Chapter 7 is the mode of bankruptcy commonly filed by individuals to “get a fresh start” although some corporations may opt for Chapter 7 bankruptcy as well.
How Chapter 7 Works
Chapter 7 works by automatically staying any collection by any debtors’ creditors by the time the application or petition is filed. After the petition is filed, creditors are then notified that they may not pursue any action related to getting any money from the debtor. These would include filing lawsuits, or make telephone calls soliciting payment. This does not mean debts are no longer pursuable; the court through a Chapter 7 Trustee will work that out in behalf of the debtor by meeting with the creditors in order to work out payment priorities, i.e. who will get first lien or first priority payment under the process. The Trustee is tasked with working a debt management plan to make sure the debtor
In the case of individual debtors, debts may be discharged so that the debtor can have a clean restart of his finances. The debtor is then released from all liabilities for these debts.
Who Can File For Chapter 7
Under the Bankruptcy Code, any business that has due grounds and proof of bankruptcy is eligible for filing under Chapter 7. Accordingly, individuals may also file for relief under Chapter 7 as long as he did receive credit counseling for 180 days prior to his filing. Also, he must also not have any prior bankruptcy filing that was dismissed 180 days before the current filing.
Creditors in turn can also force debtors to file for bankruptcy as long as they can satisfy the conditions set by the Bankruptcy Court.
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