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Bankruptcy under Chapter 7 of the Bankruptcy Act

Kentuckians who struggle with debt, whether from overuse of credit cards or medical bills or other unexpected financial catastrophe, often view bankruptcy as a means of relief. However, personal bankruptcy comes in two different flavors known by their location in the United States Bankruptcy Act: Chapter 7 and Chapter 13. Chapter 7 is generally used to apply a debtor’s assets to pay debts and to discharge all debts that are not repaid or settled. Chapter 13 is used to establish a plan to reorganize those debts and pay them off over time. In this post, we will provide an overview of the mechanics of Chapter 7.

A person seeking relief under Chapter 7 must file a petition with the bankruptcy court that sets forth essential information about the debtor, such as schedules of assets and liabilities, a schedule of current income and living expenses, a statement of financial condition, a schedule of executory contracts and unexpired leases. In addition, the debtor must provide tax returns for the year immediately preceding the year of filing. Filing fees must be paid when the petition is filed. The debtor must also provide a complete list of creditors and the amounts owed.

After the required information is provided by the debtor, the court will appoint a trustee to take charge of the debtor’s assets and to conduct the remainder of the proceeding. Between 20 and 40 days after the petition has been filed, the trustee will meet with creditors and the debtor. The debtor must answer creditors’ and the trustee’s questions under oath.

The trustee will prepare a report to the bankruptcy court that states whether the debtor has complied with the requirements of Chapter 7, and whether the debtor can be discharged from liability. The bankruptcy code lists a number of reasons why a discharge may be denied. If the debtor is eligible for discharge, the court will enter an order specifying the debts that are discharged. If the debtor has failed to comply with Chapter 7, the court will order appropriate relief.

Legal advice may be useful in helping a debtor understand the rules and procedures that apply to a Chapter 7 proceeding.

Source: FindLaw, “Chapter 7: How it Works,” accessed on May 27, 2017

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