Business owners should know there’s not just one form of bankruptcy—there’s six major types. Chapter 7 Bankruptcy, or “liquidation under the Bankruptcy Code,” liquidates the nonexempt property of the business and uses the money earned to pay back creditors. What in your business is nonexempt? And will that none exemption sale affect foreclosure sales?
Learn more about what is and isn’t part of what you lose when declaring Chapter 7 bankruptcy.
Chapter 7 Bankruptcy: What It Is
Did you know that Chapter 7 is the most common form of bankruptcy? If you choose to declare Chapter 7 bankruptcy, you’ll join over 350,000 others who have done the same in 2023 alone. This type of bankruptcy entails:
- Liquidation: Gathering nonexempt assets and selling them to satisfy creditor loans, debts, and more.
- Paying of debts: Debtors (the person carrying the debt and filing for bankruptcy) need to discharge their debts. This is done through asset liquidation and then a discharge of unsecured debt—or loans unbacked by collateral.
Chapter 7 does not feature a repayment plan. After all nonexempt assets are liquidated, anything unsecured is discharged.
Both individuals and businesses can file for Chapter 7, while usually individuals only file for Chapter 13 (but small businesses can in certain situations).
Chapter 7 Bankruptcy: What It Isn’t
When it comes to personal finances, individuals usually file Chapter 7 or Chapter 13 bankruptcy. If it’s a business, they also may choose to file Chapter 11. Below, let’s look at what isn’t part of Chapter 7 bankruptcy:
- An all-out repossession of daily living essentials:
- Necessary clothing, household items, the appliances, or the furnishings inside your primary (and now only) residence.
- Jewelry and vehicles up to a particular value.
- Repossession of certain financial assets:
- Child support and/or alimony payments.
- Pensions and retirements.
- Welfare, social security, and/or financial compensation from personal injury cases.
- A way to stall foreclosure or repossession of your home or car.
- A legal entrance into a court-mandated repayment plan.
Chapter 7 focuses on liquidation of non-essential assets to discharge the debtor’s debt to creditors, while Chapter 13 bankruptcy is more of a reorganization of assets for a debtor to keep a major asset like a home or car when they’ve fallen behind on payments.
Assets You Lose In Chapter 7 Bankruptcy
While every bankruptcy case is unique, the following list entails some of the most common assets liquidated under Chapter 7 bankruptcy. These entail things that are not vital to living and working, such as:
- Extravagant musical instruments (unless you are a professional musician).
- Extensive collections of valuable items like stamps or coins.
- Valuable family heirlooms.
- Any additional cash, investments, stocks, or bonds.
- Additional owned vehicles (not exclusively used for work).
- Additional homes.
When it comes to rental properties, the law and finances become complicated. It’s not a guarantee that you can keep the property, but the decision will depend on the amount of equity you have in the property itself.
Will Chapter 7 Bankruptcy Delay a Foreclosure Sale?
Often, filing for Chapter 7 bankruptcy will delay a foreclosure sale between three and four months. However, the actual length of the delay can depend on your location or extenuating circumstances.
Under general rule, the filing of a Chapter 7 bankruptcy will immediately halt all foreclosure sale proceedings—down to the minute. Despite this, filing isn’t a great idea unless it’s absolutely necessary to save more than just your home.
Why?
After filing Chapter 7 bankruptcy, you most likely won’t be able to get one for another eight years at least. If you have very little debt that will be expunged under Chapter 7—and have only filed to buy more time on your house foreclosure—there’s no guarantee the extra time will result in loan modifications from your lender to solve the problem.
Chapter 7 bankruptcy is a good choice for individuals with serious debt issues. If you have questions about your specific financial circumstances, give us a call to discover how we could help you navigate your debt and/or bankruptcy.
When Your Back’s on the Wall with Bankruptcy, Bet on Us
The bankruptcy attorneys at Dethlefs Pykosh & Murphy understand the tumultuous emotions that accompany Chapter 7 bankruptcy. No matter the circumstances, we’re here to help you to find a legal way out of unsecured debt and reclaim your peace of mind. Contact our offices today to get started with an introductory, complementary consultation.