The most filed Chapter within the Bankruptcy context is Chapter 7. It is estimated that approximately 2 out of 3 Bankruptcy cases filed in the United States are filed under Chapter 7. A Chapter 7 case can be filed either for individuals or for businesses.
For an individual Chapter 7 case, the debtor filing for relief is alleging to the Bankruptcy Court and all involved creditors that their income is not sufficient to pay any of their unsecured debts after factoring in their reasonable and necessary expenses. The Court examines their incomes and if the income falls under a certain threshold, the Court confirms that the individual is allowed to proceed with Chapter 7. From there, the Court will look to liquidate (i.e. sell) the individual’s assets to the extent the assets are “non-exempt”. For assets that are “exempt”, the Court is unable to liquidate that specific asset. The goal at the end of the case is to receive a discharge. The Discharge, once entered, erases a person’s legal obligation to pay back the certain debts. Examples of debts that are discharged are credit card bills, personal loans, medical bills, etc.
For a business Chapter 7 case, the goal of the case is somewhat different. A business Chapter 7 case is useful when the business has assets that the Court would be able to liquidate. Also, the business would not be allowed to continue forward once it files the Chapter 7. For a business Chapter 7, there are “exemptions” available, meaning no assets would be “exempted” away from the liquidation. Also, no Discharge is entered for business Chapter 7 cases; the assets are liquidated, the funds are distributed, and the case is closed.
