Chapter 7 Bankruptcy
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An individual or business can apply for chapter 7 bankruptcy, subject to a means test. However, whilst bankruptcy offers a way out of debt problems, it brings with it problems of its own, therefore sound financial advice should be sought before proceeding.
Business is often about taking calculated risks, Unfortunately, sometimes the calculations prove to have been flawed, resulting in economic difficulties, and ultimately, bankruptcy.
Businesses and individuals can file for bankruptcy under chapter 7, the rules for both are the same, as is the outcome, freedom from (most forms of) debt.
Chapter 7 is often the preferred chapter for filing bankruptcy, because despite having to sell all personal posessions and company assets, chapter 7 leaves one debt free. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was introduced partly to ensure that creditors were paid in full, in those situations where the individual or business could in fact repay its debt in full, subject to a rescheduling of debt repayments.
Therefore the law provides for a compulsory means test, so that the applicant for chapter 7 has to prove that they can no longer afford to continue in business or employment. In other words, if the bankruptcy court discovers that with a structured financial plan (the repayment plan), the applicant could in fact, over time, continue in work or business and repay all of his debts, chapter 7 will not be granted. Instead, a chapter 13 bankruptcy, where a strict repayment plan is worked out by the court, will be enforced. In this case, no assets are sold.
Chapter 7 is usually granted if the means test shows insufficient means to clear the debt.
Where chapter 7 is granted, all assets are liquidated and the proceeds allocated to the various creditors. At the time the application is filed, the court will automatically grant "automatic stay", which means no creditor may contact the debtor in pursuit of payment. This often comes as a relief to the applicant, who is then free from letters and calls from those to whom they owe money.
When a business has successfully filed under chapter 7, the trustee assumes the running of the business and the management board lose their jobs.
After 10 years, the bankruptcy is removed form one's credit record.
Article Source: Articlelogy.com
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