Chapter 7 Bankruptcy
By
Jonathan Boral on August 4, 2010
Chapter 7 Bankruptcy, the most prominent form of bankruptcy in the United States, was responsible for placing over 1 million individuals in debt during 2008. This form of debt is characterized by the liquidation of assets, or the redistribution of those assets owned by the individual or business.
For businesses, filing for Chapter 7 bankruptcy means that they cease operation with the assets of that company being redistributed. The main purpose of this is to take those assets and hopefully pay off debt owed by the company. And while this explanation may give the sense that all employees of that company are left without a job, this, many times, entire departments of a company can stay intact and be sold to other companies.
When individuals file for Chapter 7 bankruptcy, they are also forced to sell their assets in order to pay off debts, but there are limits as to what creditors are allowed to take. Items including mortgages, car loans, child support, and any money allocated in divorce settlements are not eligible to recoup losses. Banks and creditors often look for higher-priced assets in order to pay back any loans. Items such as electronics (i.e. televisions), excessive vehicles (boats, motorcycles), and appliances are often those assets seized.
And while filing for Chapter 7 Bankruptcy is not always viewed as a favorable course of action, there are both
positives and negatives to the situation. First off, filing for bankruptcy keeps you safe from creditors. With the money they receive from collecting your assets, they understand their total amount may not exceed the amount of the loan originally agreed upon. On the other hand, filing for
bankruptcy is a process that is left on your financial records for ten years. Going to banks and securing a new loan after filing becomes far more tedious with this transaction placed on your financial history.
In the end, it is best to avoid filing for Chapter 7 bankruptcy altogether, but when worst comes to worst, it is always better to be knowledgeable about the specifics of your financial situation.