Filing under Chapter 7 bankruptcy laws has perhaps one major advantage, and one major disadvantage.

Perhaps the major attraction of the Chapter 7 bankruptcy laws is that it allows the filer to restart their life debt free and with a “clean slate”. However, the downside is that Chapter 7 results in the liquidation of personal property and valuables, including the family home, as opposed to Chapter 13, where no assets have to be sold.

An individual’s credit record will retain notice of a chapter 7 bankruptcy for a period of 10 years, chapter 13 for 7.

Unlike chapter 13, chapter 7, once filed with the court, affords the individual protection under what is called “automatic stay”.

This means that all creditors are prevented from hounding the individual which is important, particularly if a foreclosure notice has been served.

There are some exceptions to debt that can be legally discharged under any type of bankruptcy, including, but not limited to alimony and outstanding tax demands.

Given that a chapter 13 bankruptcy results in a repayment plan so that all debts are subsequently repaid, this is useful if a major contributor to the bankruptcy application is debt that cannot be discharged under the chapter 7 bankruptcy laws.

The process to file under Chapter 7 bankruptcy laws is as follows:

1. The court will require income details, together with a list of personal posessions and their market value, and a list of debts and creditors.

2. Bankruptcy forms once completed should be deposited with the nearest Federal court.

3. The “order of relief” is then issued which then prohibits even a phone call by your creditors demanding payment.

The individuals and their accounts are scrutinized for veracity at a “Meeting of Creditors”, for which it is compulsory for the individual to attend, approximately 30 days after filing for chapter 7 bankruptcy.

6. Under the supervision of a trustee, appointed by the court, the individuals assets are then sold to repay as much debt as possible.

6. It takes approximately 30 days for the discharge notice to be served after the Meeting of Creditors.

7. On receiving the discharge notice, all personal liability for any discharged debt is removed, and no further action can be taken by creditors against the individual or their exempted property.

99% of chapter 7 cases result in a discharge.

Grounds for denying a discharge under chapter 7 bankruptcy laws are:

1. The individual did not provide accurate accounts.

2. The individual tried to hide personal assets from the court.

4. The individual was seeking bankruptcy under criminal circumstances.

4. An order of the bankruptcy court was broken.

5. The individual concealed, destroyed or transferred any property that belonged to their estate.

In the case of 5, above, should the circumstances detailed be found out after a discharge, the discharge may be revoked.

However, it is possible to retain certain types of property, perhaps a classic car for example, under “reaffirmation”.

This simply means that a written agreement is made and filed with the court, in which the seller and debtor agree that the item may be kept as long as repayment s are maintained.

The two main alternatives to chapter 7 bankruptcy are chapter 13 and to a lesser extent, chapter 11.

Chapter 13 bankruptcy provides for repayment of debt via a repayment plan and has no liquidation of assets, likewise chapter 11, which is more common amongst large corporations.

Repayment of debt is still the leading principle of bankruptcy. Should it be decided via means testing that an individual can repay their debt over the longer term (3 – 5 years), they will be forced into a chpater 13 filing by the court.

If you would like more information on Chapter 7 insolvency laws and other aspects of insolvency, including restoring your credit score after insolvency, visit www.howtoclaiminsolvency.net.