Chapter 7 bankruptcy is the most common form of bankruptcy in the United States. It is also referred to as liquidation bankruptcy. It allows debtors to lose all their debt and start over from scratch. Most of their assets are liquidated to pay off the creditors, and their credit score decreases. The creditors are paid off, and the filer can have a clean slate. In 2005, there were major changes made to the bankruptcy law to stop people from abusing it. After these changes, eligibility criteria to file for Chapter 7 bankruptcy became stricter.
Businesses may also file for Chapter 7 bankruptcy when badly troubled by debt. This means that the business will have to cease operations unless it agrees to operate under a Chapter 7 Trustee. A Chapter 7 Trustee oversees all the financial affairs of the business. The trustee is responsible for selling off the businesses assets and paying off the debtors.
Individuals filing for Chapter 7 bankruptcy will have to sell most of their property, except certain exempt property. Exempt property is a kind of property that cannot be sold, passed by will or claimed by creditors. Whether a property will be exempted depends on the state law, as some states have more lenient exemption laws than others. Chapter 7 bankruptcy stays on a person's credit report for 10 years and affects their chances of obtaining credit in the future.
There are several ways to file for Chapter 7 bankruptcy. You could do so by filling out federal bankruptcy forms, using the bankruptcy software available online, or filing through a bankruptcy attorney. After the changes in bankruptcy law in 2005, the process has become complicated. It might be a good idea to contact an attorney for help regarding Chapter 7 bankruptcy. An attorney can advise you on how and when to file for bankruptcy, and assist you in the process.