The concept of bankruptcy that the common person has, is about
the chapter 7 bankruptcy. This type of bankruptcy is also termed as
straight bankruptcy or liquidation bankruptcy. This article intends to
explain the basic things that you need to know regarding the chapter 7
bankruptcy.
What is chapter 7 bankruptcy?
Once a
debtor is granted bankruptcy under the Chapter 7 bankruptcy, a trustee
is appointed by the bankruptcy court. The trustee then arranges to sell
off all the assets, as declared by the debtor. The money thus collected
is used to pay off the debts owed to various creditors based on the
priority level, if any. This way, we can see that the chapter 7
bankruptcy is the worst kind of bankruptcy. The debtor gets no chance to
continue with their business operations. All their assets are sold off,
except for the exempted assets as applicable as per the specific
bankruptcy laws of that particular state.
Is chapter 7 bankruptcy a matter of choice?
The
first thing that you must know regarding the chapter 7 bankruptcy is
that it is not a matter of choice. Not everybody can file for bankruptcy
under chapter 7. There are certain eligibility criteria that you need
to fulfill, in order to file a petition for chapter 7 bankruptcy in the
bankruptcy court. After the inclusion of the new bankruptcy laws to the
bankruptcy code, now it is mandatory for all the debtors to pass a means
test before filing bankruptcy. The MEANS test is a procedure, where you
have to analyze your income and expenses, in order to see if the money
left after deducting the necessary expenses is sufficient to pay off the
monthly installments of the various debts that you owe. If the money
left is less than the median income of the state, you can qualify for
the chapter 7 bankruptcy. On the other hand, if the money left after
deducting the expenses, is more than the median income of the state, you
will not be able to file bankruptcy under chapter 7 of the bankruptcy
code. For such cases, chapter 13 bankruptcy is applicable.
How much does chapter 7 bankruptcy cost?
Filing
bankruptcy under chapter 7 of the bankruptcy code, costs almost 250 to
350 dollars depending upon the specific case. However, you should not
forget about the long-term bankruptcy cost that chapter 7 bankruptcy
brings with it. Once you are declared bankrupt under this chapter, the
bankruptcy will keep affecting your financial life negatively, for the
next 10 years at least.