Chapter 7 of Title 11 of the United States Code (Bankruptcy Code) governs the liquidation process under United States bankruptcy laws (on the contrary, Chapters 11 and 13 regulate the process of reorganization of the debtor in bankruptcy). Chapter 7 is the most common form of bankruptcy in the United States.
Video Chapter 7, Title 11, United States Code
For business
When a problematic business can not pay its creditors, it may file (or be forced by its creditors to file) for bankruptcy in federal court under Chapter 7. Submission of Chapter 7 means that the business ceases to operate unless the operation is continued by Chapter 7 Trustee. The Superintendent of Chapter 7 was immediately appointed, with extensive powers to examine the business finances. The Trustee generally liquidates the asset and distributes the proceeds to the creditor. This may or may not mean that all employees will lose their jobs. When a large company enters Chapter 7 bankruptcy, all divisions of the company can be sold intact to other companies during the liquidation.
Investors who take the least risk before bankruptcy are generally paid first. For example, secured creditors will take on less risk, because the credits they want to extend are usually backed by a guarantee, such as a debtor company's assets. Secured creditors often know that they will be paid first if the company declares bankruptcy. The fully-guaranteed creditors, such as the bondholders or mortgage lenders, have legally enforceable rights to the collateral that secures their loan or equivalent value, a right that can not generally be defeated by bankruptcy. A creditor is fully guaranteed if the value of collateral for his loan to the debtor equals or exceeds the amount of debt. For this reason, however, fully guaranteed creditors are not entitled to participate in the distribution of liquidated assets that may be made by a bankruptcy trustee.
In the case of Chapter 7, a company or partnership does not accept bankruptcy. One may accept the release of Chapter 7 (see 11 U.S.C.Ã,§Ã, 727 (a) (1) ). Once all assets of the company's debtors or partnerships have been fully managed, the case is closed. Company debt or partnership theoretically persists until the applicable legal restriction period ends.
Maps Chapter 7, Title 11, United States Code
For individuals
Individuals who live, own a place of business, or own property in the United States may file bankruptcy in federal court under Chapter 7 ("direct bankruptcy", or liquidation). Chapter 7, like other chapters of bankruptcy, is not available to individuals who have had bankruptcy cases rejected in the previous 180 days under certain circumstances.
In Chapter 7 bankruptcy, individuals are allowed to maintain certain exclusion properties. However, most liens (such as mortgage real estate and security interests for car loans), survive. The value of a property that can be claimed as an exception varies from state to state. Other assets, if any, are sold ( liquidated ) by the trustee to pay the creditor. Many types of unsecured debt are issued legally by the bankruptcy process, but there are various types of debt that are not discarded in Chapter 7. General exemptions for discharge include child support, income tax less than 3 years, property taxes, student loans (unless the debtor wins in difficult disputes to win to determine student debit debts), and fines and restitution imposed by the courts for crimes committed by the debtor. Spousal support is also not covered by bankruptcy filing, nor is there a property settlement through divorce. Despite their potential non-dischargeability, all debts must be registered on the bankruptcy schedule.
Chapter 7 bankruptcy remained on an individual credit report for 10 years from the date of petition filing Chapter 7. This contrasted with the bankruptcy of Chapter 13, which remained on an individual credit report for 7 years from the date of submission of Article 13. This may make credit less available or possibly make loan terms are less favorable, although high debt can have the same effect. It must be offset by the actual write-off of the reporting records by bankruptcy, which tends to increase creditworthiness. However, consumer credit and creditworthiness are complex. The future ability to get credit depends on many factors and is unpredictable.
Another aspect to consider is whether the debtor can avoid the challenge by the United States Trustee against filing his Chapter 7 as roughly . One factor in considering whether a US Trustee can win the challenge for a Chapter 7 debtor's submission is whether the debtor is otherwise able to pay part or all of its debts from disposable income within the five-year period provided by Chapter 13. If so, the US Trustee can succeed in preventing the debtor from receiving the debit under Chapter 7, effectively forcing the debtor into Chapter 13.
Some bankruptcy practitioners state that the US Trustee has become more aggressive in recent times pursuing (what US Trustees believe) editing Chapter 7. Through these activities, the US Trustee has reached a regulatory system approved by Congress and most comments creditor friendly, that is, a formal means test for Chapter 7. Prevention of Bankruptcy Abuse and the Consumer Protection Act of 2005 has clarified this issue by making amendments to the US Bankruptcy Code which includes, along with many other reforms, languages ​​that impose a means test for cases -case Chapter 7.
Creditworthiness and the likelihood of receiving Chapter 7 expenditure are some of the issues that should be considered in determining whether to file for bankruptcy. The importance of the effect of bankruptcy on creditworthiness is sometimes overemphasized because when many debtors are ready to file for bankruptcy, their credit score has been destroyed. Also, new loans are extended after the petition is not covered by debits, so creditors can offer new loans to newly-bankrupt ones.
Method of filing bankruptcy
Forms of federal bankruptcy
Functionally, templates are more or less equivalent to paper bankruptcy paper forms. The official Federal bankruptcy forms specified in the Federal Bankruptcy Rules come as Microsoft Word and Adobe Acrobat formatted templates in which any form of bankruptcy is represented by a Word or Acrobat file. While these forms are electronic and are on the computer, they do not contain the intelligence that will guide the debtor. Debtors still have to fill each bankruptcy form separately as they will with paper forms and debtors still have to grapple with the complexity of bankruptcy law.
Bankruptcy software
In bankruptcy software, the debtor interacts with the software through a web page and is protected from the true form of bankruptcy and from the ins and outs of bankruptcy law. The debtor responds to questions in an interview arrangement, similar to a tax program such as TurboTax or an automated document created through HotDocs. Debtors include names and addresses, their creditor list and their assets and other financial information and software generates all forms ready for trial and sends them to the debtor by email or download link. The accuracy of the form is not perfect, because of the difficulty of the software to ensure that the debtor understands what should be disclosed, what is the exception for their country, whether they qualify for the exemption, and whether the cost is included in the test of the means. allowed.
Non-lawyer petition request
The alternative to doing it yourself is a petition for bankruptcy petition. This method appeals to those who can not afford the higher costs of bankruptcy lawyers and at the same time does not want the hassle and uncertainty of templates and software that are self-prepared. Applicant bankruptcy petition meets this need. The bankruptcy form is prepared by trained individuals rather than by the debtor himself. However, preparing or preparing paralegals to petition does not guarantee compliance with all applicable laws, or ensures that maximum benefits will be withdrawn from exceptions. Like online bankruptcy software, debtors in some cases submit their bankruptcy information through a simple webpage interface. Rather than having some software that automatically generates forms, trained paralegals use information to prepare documents and then send them to debtors. The bankruptcy supervisor will check the bankruptcy petition to ensure that the petition is properly prepared, as the trustee would if a lawyer had prepared the form. BAPCPA provides guidelines for petitioners to follow to protect consumers.
Bankruptcy attorney
A bankruptcy lawyer can advise consumers when the best time to file it, whether they qualify for chapter 7 or need to file chapter 13, ensuring that all requirements are met so bankruptcy will go smoothly, and whether the debtor's assets will be safe if they apply. With the expanded requirement of BAPCPA bankruptcy action in 2005, filing chapter 7 personal bankruptcy is complicated. Many lawyers used to practicing bankruptcy in addition to their other fields have stopped doing so because of the additional requirements, responsibilities and work involved. After the application is filed, the attorney can provide another service.
revision of bankruptcy law 2005: BAPCPA
On October 17, 2005, Prevention of Bankruptcy Abuse and Consumer Protection Act (BAPCPA) came into force. This law is the biggest reform of the bankruptcy law since 1978. The law comes into force after years of lobbying the efforts of banks and lending institutions and is intended to prevent abuse of bankruptcy laws.
The changes in Chapter 7 are extensive.
Means test
The most important changes brought about by the 2005 BAPCPA amendment took place inside. This amendment is effectively subject to most of the income-generating debtor, as calculated by the Code, above the average income of the state debtor census into a 60-month disposable income-based test. This test is referred to as "test means". The test means providing misuse findings if the disposable monthly income of the debtor is higher than the amount of a certain floor or part of their debt. If the presumption of harassment is found under the means test, it may be simply denied in the case of "special circumstances." Debtors whose earnings are below the state median earnings are not subject to meaningful tests. Under this test, any debtor with more than $ 182.50 in monthly disposable income, under the formula, will face the presumption of abuse.
Specifically, the Code is calculated revenue is based on the previous six months and may be higher or lower than the actual income of the debtor at the time of filing for bankruptcy. This led some commentators to refer to "current monthly income" as "expected income". If the debtor's debt is not primarily consumer debt, then the test means no validity. Non-compliance with non-consumer debt allows business debtors to "abuse" credit without reaction unless the court finds a "cause."
"Special circumstances" do not provide judicial discretion; but rather provides the debtor with the opportunity to adjust earnings by documenting additional expenditure or income loss in situations caused by medical conditions or called or orders for active military service. However, the assumption of abuse is simply denied where additional fees or adjustments for lost income are significant enough to alter the results of the facility tests. Otherwise, abuse is still considered despite "special circumstances."
Credit extension
Other major changes to laws passed by BAPCPA are subject to the terms. Ã,§109 (h) provides that the debtor will no longer be eligible to apply under Chapter 7 or Chapter 13 except within 180 days before the submission of the debtor receives "individual or group direction" from a non-profit credit and non-profit credit counseling approved by the United States Trustees' trust or bankruptcy administrators The new legislation also requires that all individual debtors in Chapter 7 or Chapter 13 complete the "instructional course on personal financial management." If the debtor Chapter 7 does not complete the course, this is the basis for refusal of dismissal under new §727 (a) (11). The financial management program is experimental and the effectiveness of this program will be studied for 18 months. Theoretically, if the education course proves ineffective, the requirements may be lost.
Entry exception
BAPCPA seeks to eliminate perceived "forum shopping" by changing rules about claim exceptions. Under BAPCPA, borrowers who have moved from one country to another within two years of filing (730 days) of bankruptcy cases shall use exceptions from the place of the debtor's domicile for most of the period 180 days before two years (730). days) before the filing of Ã,§522 (b) (3). If the new residency requirement makes the debtor unqualified for any exceptions, then the debtor may choose a federal exemption.
BAPCPA also "limits" the number of homesteads that a debtor can sue in bankruptcy, despite state exclusion laws. Also, there are "hats" placed on the liberation of the guesthouse in a situation where the debtor, within 1215 days (about 3 years and 4 months) before the bankruptcy case added value to the guesthouse. The provision states that "any value that exceeds $ 125,000" added to a guesthouse can not be excluded. The only exception is if its value is transferred from another guesthouse within the same country or if the homestead is the main residence of the family farmer (Ã,§522 (p)). This "hat" will apply in situations where a debtor has bought a new house in a different country, or where the debtor has increased its value to the homestead (possibly through renovation or addition).
Lien removal
Some types of liens can be avoided through Chapter 7 bankruptcy cases. However, BAPCPA limits the ability of debtors to avoid lien through bankruptcy. The definition of "household goods" is changed to limit "electronic equipment" to one radio, one television, one VCR, and one personal computer with related equipment. The present definition does not include works of art not made by debtors or relatives of debtors, jewelry worth more than $ 500 (excluding wedding rings), and motor vehicles (Ã,§522 (f) (1) (B)). Prior to BAPCPA, the definition of household goods was wider so that more goods could be included, including more than one television, VCR, radio, etc.
Other changes
- Reduce the amount and type of debt that can be disposed of in bankruptcy. Decrease of the limit for the release of debt issued by the use of luxury goods. Expand the scope of student loans that can not be recovered without undue difficulties.
- Increase the time at which the debtor has several releases from 6 to 8 years.
- Limitations of automatic residence, especially for debtors who filed claims within one year after the previous bankruptcy. An automatic stay may be extended upon court discretion.
- BAPCPA limits the adoption of automatic delays in the eviction process. If the owner has obtained an ownership rating before the bankruptcy case is filed, the Borrower must deposit escrow for lease with the Bankruptcy Court, and the period of stay may be withdrawn if the Borrower does not pay the Landlord in full within 30 days thereafter, Ã,§362 (b) (22). The period of residence also shall not apply in situations where the expulsion is based on the "danger" of the rental property or "the illegal use of controlled substances" in the property, Ã,§362 (b) (23).
- BAPCPA enforces provisions protecting creditors from monetary penalties for violation of term of stay if the debtor does not provide "effective" notice under [§342 (g)]. The terms of the new notice require the debtor to provide bankruptcy notices to the creditor on "the address filed by the creditor with the court," or "at the address stated in two communications from the creditor to the debtor within 90 days of filing of the bankruptcy case.
References
Further reading
United States Bankruptcy Code; 2016 Edition . ISBN: 9781942842033. Ã,
External links
- US Bankruptcy Code via usbankruptcycode.org
Source of the article : Wikipedia
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