Chapter 7 of the United States Bankruptcy Code is the Code’s liquidation
chapter. Often attorney’s refer to Chapter 7 as “straight bankruptcy.”
Primarily, individuals file for protection under Chapter 7 to free themselves of
debt. Additionally, businesses that want to liquidate and terminate their
business file under Chapter 7.
The filing of a petition under Chapter 7 of the US Bankruptcy Code may result
in the loss of debtor’s non-exempt assets. Under Chapter 7, the individual
debtor theoretically places all assets under the control of the Federal
Bankruptcy Court for administration. The debtor can then “exempt” (“keep”)
certain property based on federal or state bankruptcy statutes, while the
debtor’s remaining assets are liquidated by a trustee (appointed by the Federal
Bankruptcy Court). The trustee then distributes the proceeds from the sale of
these non-exempt assets to creditors according to a statutory scheme of
distribution.
To qualify for relief under Chapter 7 of the US Bankruptcy Code, the debtor must
be an individual, partnership, or corporation.
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