Chapter 7: Liquidating Assets And Discharging Debts

Whether you are seeking personal bankruptcy protection or bankruptcy on behalf of your small business, Chapter 7 bankruptcy may be right for you. Sometimes referred to as liquidation bankruptcy, Chapter 7 personal bankruptcy discharges most unsecured debt instead of restructuring it. The trade-off is that in some cases your assets may need to be sold (liquidated) in order to pay off certain creditors. However, California provides very generous legal exemptions which enable most filers to protect all or most of their assets.

When you call Joshi Law Group, we will take the time to assess your current financial health and determine which debt relief option is most appropriate for you. Keep reading to learn more about Chapter 7 bankruptcy for individuals and businesses.

The Basics Of Chapter 7 Bankruptcy For Individuals

The most common types of personal bankruptcy are Chapter 7 and Chapter 13. The type you choose depends on a number of factors, including what kind of debt you have. Chapter 7 discharges debt that is unsecured — meaning debt without collateral or a guarantor. Generally, unsecured debts include:

  • Credit card balances
  • Medical bills
  • Utility bills
  • Personal loans without collateral
  • Some tax debts
  • Social Security overpayments
  • Deficiencies for repossessed vehicles or personal property
  • Certain property damage claims
  • Most debts incurred through identity theft
  • Certain debts prior to marital dissolution

Although student loans are technically unsecured debt, they are rarely dischargeable through bankruptcy; the same is true with child support obligations. Creditors may also petition the court to have some debts declared non-dischargeable. In general, however, Chapter 7 wipes out nearly all of your unsecured debts.

Chapter 7 Bankruptcy For Businesses

When a business files for Chapter 7, debts are not discharged as they are for individuals. Instead, all of the business's assets may be liquidated in order to pay creditors. A bankruptcy trustee will be assigned to your case to assist you with liquidation and negotiating with creditors.

It is important to note that, depending on the structure of your business, you may be filing for personal bankruptcy rather than business bankruptcy. If you run a sole proprietorship, which is not a distinct legal entity, you will likely need to file personal bankruptcy. A corporation, LLC or other distinct business entity will often be eligible for business bankruptcy. In some instances, dissolving a business can be more costly than having the business go through a bankruptcy. If you have a business that is struggling and would like to learn more about your options both personally and for the business, then give us a call. Did we mention consultations are free?

Do You Qualify For Chapter 7?

Because Chapter 7 eliminates debt by discharging it, bankruptcy courts want to make sure that it is not being abused by those with the ability to pay back some or all of their debts. Therefore, filers need to pass a means test, which measures income and certain other factors. If the filer's income is too high or they fail to meet other requirements, they are deemed ineligible for Chapter 7 bankruptcy.

Filling business bankruptcy is somewhat easier under Chapter 7, as long as your debt was primarily related to running your business.

Chapter 7 bankruptcy can also be utilized in certain situations as a way of relinquishing secured property for which you cannot continue paying, litigating or otherwise dispose. Chapter 7 bankruptcy may allow you to surrender certain secured property interests and absolve you of associated claims as well.

In rare circumstances, Chapter 7 bankruptcy can be utilized to remove you or your business from ongoing litigation that is not affordable. These situations are assessed on a case-by-case basis and should not be assumed without consulting experienced bankruptcy attorneys.

Contact Us Today For A Free Initial Consultation

Joshi Law Group serves clients in San Diego and the surrounding areas. We are pleased to offer free initial consultations to all prospective clients. To discuss your debt relief options with a lawyer who really listens, call us at 619-822-7566 or send us an email.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.