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Individuals who have an unmanageable amount of
debt and few assets can file for chapter 7
bankruptcy. It is liquidation bankruptcy.
An individual's assets are liquidated and the
proceeds are provided to his/her creditors.
Many individuals who file for chapter 7 bankruptcy
have little or no assets and large unsecured debts.
Certain basic, exempt property is allowed to be
retained by the individual as are some secured items
such as an automobile along with its related loan
obligation. All other remaining debts are are
cancelled by the court.
Some debts are exempt from bankruptcy discharge.
Such debts include child support, student loans,
taxes, municipal fines and court ordered restitution
imposed for criminal activity.
A chapter 7 bankruptcy filing remains on the credit
record of an individual for 10 years. Generally,
a bankruptcy on one's credit record is a negative
although the debts and defaults that may be on the
record prior to the bankruptcy may be equally or more
negative since the individual now has a new lease on
his/her financial life.
If it can be shown that the individual used the
bankruptcy laws in an abusive way, where he/she had a
substantial source of income and been able to pay a
large amount of the discharged debt within three
years, the bankruptcy may be reversed by the court and
converted to chapter 13 bankruptcy (reorganization).
Furthermore, if the individual hid or recently
transferred assets that were not divulged to the court
the court may elect to restructure or reverse the
bankruptcy.
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