Chapter 7 Bankruptcy Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Chapter 7 Bankruptcy, written in plain English, along with examples of how it is used.

What is Chapter 7 Bankruptcy?

It is also a form of filing for bankrupcy where the debtor asks for liquidation of his/her assets and the law sells his assets and properties , the sale proceed of which is used to payoff the creditors due.

History and Meaning of Chapter 7 Bankruptcy

Chapter 7 bankruptcy was first introduced by the United States government in the late 1970s as a way for individuals and companies to eliminate their debts and get a fresh start. This type of bankruptcy is also known as liquidation bankruptcy, as it involves the sale of assets in order to pay off creditors. In a Chapter 7 bankruptcy case, a court-appointed trustee takes control of the debtor's assets and sells any non-exempt property. The proceeds from the sale are then used to pay off as much debt as possible, with any remaining debt typically discharged.

Examples of Chapter 7 Bankruptcy

  1. John had accumulated over $100,000 in medical bills that he couldn't afford to pay. He decided to file for Chapter 7 bankruptcy in order to eliminate his debts and start fresh.
  2. Mary had lost her job due to the pandemic and was struggling to keep up with her mortgage payments. She filed for Chapter 7 bankruptcy in order to avoid foreclosure and sell off her non-exempt assets to pay off her debts.
  3. The owner of a struggling small business decided to file for Chapter 7 bankruptcy in order to liquidate the business and pay off outstanding debts.

Legal Terms Similar to Chapter 7 Bankruptcy

  1. Chapter 11 Bankruptcy: This type of bankruptcy allows businesses to restructure their debts and operations in order to stay in business.
  2. Chapter 13 Bankruptcy: This type of bankruptcy allows individuals to restructure their debts and create a payment plan to repay their creditors over time.
  3. Liquidation: The process of selling assets in order to pay off debts, often used in Chapter 7 bankruptcy cases.