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