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Chapter 7 bankruptcy

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Chapter 7 bankruptcy liquidates the debtor's assets and distributes the proceeds to creditors, effectively erasing all debt that can legally be removed.
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Contents

Overview

In a chapter 7 bankruptcy liquidation case, a trustee collects the debtor's nonexempt assets and converts them into cash. The trustee then distributes the resulting fund to the creditors in order of priority described in the Bankruptcy Code.[1] Creditors frequently receive only a portion, and sometimes none, of the money owed to them by the bankrupt debtor.

When the debtor is an individual, once the liquidation and distribution are complete, the bankruptcy court may discharge any remaining debt. When the debtor is a corporation, upon liquidation and distribution, the corporation becomes defunct. Remaining corporate debts are not formally discharged, as they are with individuals. Instead, creditors face the impossibility of pursuing debts against a corporation that no longer exists, making formal discharge unnecessary.

According to the Phoenix Bankruptcy Law News, many senior citizens are now looking at their options through Chapter 7 bankruptcy protection. This type of bankruptcy lets debtors discharge unsecured debt. Because medical bills and credit card debt are considered unsecured debts, a bankruptcy filing could eliminate such debts and allow the debtor to start over with a clean slate after liquidation proceedings.[2]

References

  1. http://codes.lp.findlaw.com/uscode/11/7
  2. http://phoenixbankruptcynews.com/phoenix-chapter-7-bankruptcy/

External Links

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