Understanding Bankruptcy laws Chapter 7of the US Bankruptcy Act

M G Singh By M G Singh, 24th Dec 2014 | Follow this author | RSS Feed
Posted in Wikinut>Money>Tax

Chapter 7 is an important part of bankruptcy law in USA and has had far reaching effects. it was signed into law in 2005 and has greatly streamlined the law

A Far Reaching amendment

On October 17, 2005 the Bankruptcy Abuse Prevention and Consumer protection Act (BAPCPA) was made law. This legislation was the biggest reform to the bankruptcy laws since 1978. The legislation was enacted after years of lobbying efforts by banks and lending institutions and was intended to prevent perceived abuses of the bankruptcy laws
The Act of 2005 has greatly changed the ethos of bankruptcy. In this act the most significant part is section Chapter 7. The changes to Chapter 7 have been far reaching.
This is a significant statute that governs the process of Insolvency under the Bankruptcy laws of the United States. Bankruptcy laws chapter 7 differs from chapter 11 which governs the process of re-organization of a debtor in legal bankruptcy proceedings.

Bankruptcy under Chapter 7

Bankruptcy laws Chapter 7 is the most common form of bankruptcy process in the United States. It’s universal to the entire America.
Proceedings under bankruptcy act chapter 7 are of two types.

a) The first type of proceedings is when a troubled business goes into extreme debt and the debtor is unable to service that debt or pay its creditors either interest or principal. In that case it may file for bankruptcy in a federal court in the United States under Chapter 7. The concerned debtor may also be forced to file the proceedings by the creditors. Once a case is filed under bankruptcy Act Chapter 7 then as a first step the concerned business ceases operations forth with. However the business may be allowed to be continued in case permitted by the trustee appointed under bankruptcy act Chapter 7. It must be noted that once insolvency proceedings are filed under Chapter 7 a Trustee is appointed by the court almost immediately.
The role of a trustee is to oversee and manage the assets. As a general rule the Trustee generally sells all the assets. After all the assets are sold the liquid cash is distributed to the creditors.

b) The second type of filing under chapter7 is for individuals who are ordinarily residents of the United States. Such Individuals can file for bankruptcy in a federal court under Chapter 7 in what’s referred to as ‘straight bankruptcy’ or liquidation/ insolvency proceedings.

Further steps

Individuals can also file for insolvency proceedings under Chapter 11 for reorganization or debt adjustment cases. Although individuals can technically file Chapter 11 bankruptcies, those filings are rare. In a bankruptcy proceeding under bankruptcy act Chapter 7 the individual is allowed to keep certain exempt property. This is an important proviso of the act. The result of this that some liens on real estate mortgages and car loans and property can go out of the ambit of the insolvency proceedings. However the value of property which can be claimed as exempt varies and is different from one state to another. The state you reside is where the limits will be applicable for you.
Other than these exemptions the assets can be sold by the court appointed interim trustee immediately and the proceedings used to pay back the creditors.
Many types of unsecured debt are legally written off by the bankruptcy proceedings, but there are various types of debt that are not discharged in a Chapter 7 proceeding. Common exceptions to discharge include money for child support, federal and state taxes if any and most student loans obtained for education.

Last Word

However in case of adversary proceedings which are difficult to carry through, the debtor may lose out in case it is found that the debtor had fines and restitution imposed by a court for any crime that may have been committed by the debtor


American Law Bankruptcy, Bankruptcy, Bankruptcy Court, Chapter 7, Meaning Chapter 7

Meet the author

author avatar M G Singh
A man who spent his early years in Air Force. An avid writer with over 6000 articles and 60 short stories published.Two novels on the anvil for publication.

Share this page

moderator Steve Kinsman moderated this page.
If you have any complaints about this content, please let us know


author avatar Fern Mc Costigan
25th Dec 2014 (#)

I did that C7 and its the one you start fresh ch13 is based on payments only and consolidation, don't recommend that one!

Reply to this comment

author avatar M G Singh
26th Dec 2014 (#)

Thanks For commenting

Reply to this comment

Add a comment
Can't login?