Before taking a closer look at bankruptcy and the laws governing it, we need to define what bankruptcy is. In fact, the better question is “what is chapter 7 bankruptcy?”
Chapter 7 bankruptcy is by far the most common form of bankruptcy in the United States. Chapter 7 of Title 11 of the United States Code controls the process of the liquidation of the assets of a petitioner in bankruptcy. This process is called a chapter 7 bankruptcy. Consumers or businesses that carry too much debt can use it to dispose of their assets and pay their creditors with the proceeds. If there are no assets, the bankruptcy court can discharge most debts.
Another form of bankruptcy for which consumers and businesses can file is a process of reorganization in bankruptcy under the protection of the bankruptcy court. During Chapter 7 bankruptcy proceedings, a court-appointed trustee gathers and liquidates all assets of the debtor, consumer or business, filing for bankruptcy. Proceeds from the sale, if any, are distributed to the creditors according to their standing in the priority rankings of creditors.
Only assets for which the debtor has not claimed an exemption or that are exempt by law can be sold to satisfy the claims of creditors.
After the question what is chapter 7 bankruptcy, a consumer should ask whether it is wise to file for bankruptcy yourself?
Unfortunately, in 2005 legislators modified the existing bankruptcy laws by applying stricter standards to exemptions. The new rules made Chapter 7 bankruptcy proceedings more difficult. As a result, consumers filing a bankruptcy petition themselves can easily make very expensive mistakes.
Such filing errors can cost a consumer more than the fee for a bankruptcy lawyer.