Types of Bankruptcy - Chapter 7
Chapter 7, also known as a "Liquidation" may be utilized by individuals or business entities.
Chapter 7 cases have 5 stages:
- Getting the debtor into bankruptcy court;
- Collecting the debtor's property;
- Selling this property;
- Distributing the proceeds of the sale to creditors,
- Determining whether the debtor is discharged from further liability to these creditors.
In a Chapter 7 proceeding, the Debtor can discharge all of his/her unsecured debts, while the secured debt remains unchanged. A Trustee is appointed to collect non-exempt or unprotected assets of the debtor's estate, reduce them to cash, and distribute the net proceeds to creditors, subject to the Debtor's right to retain certain "exempt" property and the rights of secured creditors. An objection to discharge may be filed by the Trustee or a creditor within 60 days following the first Meeting of Creditors.
If no objections are filed, then the Debtor will normally receive a "discharge" upon the expiration of the 60 day period. Upon the filing of the petition, the Debtor is protected from lawsuits, garnishments, and other creditor actions through an "automatic stay". A business entity is not granted a discharge, but is expected to dissolve by operation of law.