Thomas K. McKnight - Bankruptcy Law Firm in Tustin, California
What Is Chapter 7?
Bankruptcy is a serious business, so you have to understand it clearly. Chapter 7 of Title 11 in the United States bankruptcy code controls the process of asset liquidation. A bankruptcy trustee is designated to liquidate nonexempt assets to pay creditors; after the proceeds are drained, the remaining debt is absolved. There are eligibility requirements to file Chapter 7, such as the borrower must have had no Chapter 7 bankruptcy discharged in the preceding eight years and the applicant must pass a means test. This procedure is also referred to as "straight" or "liquidation" bankruptcy.
Understanding Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, the absolute priority rule designates the order in which debts are to be paid. Under this regulation unsecured debt is separated into classes or categories, with each class receiving priority for payment. Secured debt is debt backed or secured by collateral to lower the risk associated with lending, such as a mortgage.
Unsecured priority debts are paid first. Examples of unsecured priority debts are tax debts, child support, and personal injury claims against the borrower. Secured debts are paid next. Last is the payment of nonpriority, unsecured debt with funds remaining from the liquidation of assets. If there are not enough funds to pay the non-priority unsecured debt, then the debts are paid on a pro-rata basis.
For more information about chapter 7 and chapter 13 bankruptcy, or how to file your bankruptcy in Tustin CA, contact Thomas K McKnight LLP at (800) 466 - 7507 or visit our website at TKMLLP.com for a Free Consultation.