- Published: October 31, 2021
- Updated: October 31, 2021
- University / College: Swinburne University of Technology
- Level: Undergraduate
- Language: English
- Downloads: 38
Chapter 7 bankruptcy also known as liquidation bankruptcy is the common bankruptcy chapter across the United States. It usually involves a trustee selling a debtor’s non-exempt assets and turning over the proceeds to the creditors. In this regard, the debtor is required to gather all their financial records properly before filing the petition. Chapter 7 bankruptcies can be filed by businesses which are troubled by debts or those which are unable to pay off their creditors. In the same way individuals who reside or own property in the country can file for chapter 7 bankruptcy. However, individuals who have had their bankruptcy cases dismissed in the last 180 days do not qualify for this type of bankruptcy.
People essentially file for bankruptcy in order to protect themselves in situations where they have much debt or cannot pay their creditors in a timely manner. This is done in order to safeguard their property from being seized by the creditors. This ensures that a person does not lose their means of survival despite having financial difficulties. People will thereby surrender portions of their assets in exchange for the forgiveness of some of the debt. In this case, both the debtor and creditor continue their work and generate income (Allen, 2008).
Once a person files for bankruptcy, they will usually have a low credit card score on their credit report. This is because bankruptcy is much derogatory item on the report. As a result of a poor report, many lenders might not consider such a person for future credit. In the same way, bankruptcy greatly affects the interest rates on loans received from financial institutions. In fact, there is considerable differences in the interest rates changed on people who have filed for bankruptcy and those who have not. Bankruptcy greatly increases the interest rates as financial institutions seek to eliminate any risks associated with failure to pay.
Allen, S. C. (2008). Bankruptcy law. New York: Chelsea House.