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Liquidation under Chapter 7 can help Texans repay lenders


The average American, whether in Tyler, Texas, or elsewhere, can rack up debt in a number of ways. Often, no notice is taken of credit card bills until the amount becomes exorbitant. Or, an unexpected medical emergency can result in significantly high expenses. It is important to ensure that there are enough funds to repay such expenses, or else a person may be faced with the possibly of selling-off of the person's assets to pay the bills.

Such a sale is a form of debt relief governed by Chapter 7 of the Bankruptcy Code. However, debtors need to take what is called the means test to establish that they qualify for such relief. Those who meet the requirements specified by the test can approach a local bankruptcy court and petition for liquidation by providing documents attesting to their financial difficulty. These documents generally outline the person's assets, liabilities, income and expenses. By these, the person must be able to prove that present circumstances do not allow another means of overcoming debt.

Once the court has all necessary information related to the person's debts and creditors, as well as about the person's earnings and expenditure and how these may be affected by filing for bankruptcy, the next step is to see how much of the person's property is exempt, per federal and state law. The debtor must then cooperate with a court-appointed trustee who will conduct meetings between the debtor and creditors and determine if the case might constitute an abuse of the bankruptcy clause. This decision is relayed back to the court which must then decide on whether to grant the individual relief.

In most cases, debtors are granted relief under Chapter 7, with creditors having no further power to collect from the individual. However, individuals who owe child custody or alimony will have to pay them even if discharged from all other debt. Again, certain creditors may not be covered by the debt discharge. Thus, while liquidation under Chapter 7 does offer a solution to those truly incapable of repaying their debts, the procedure does require understanding the process and cannot be undertaken frivolously.

Source: USCourts.gov, "Liquidation Under the Bankruptcy Code," Accessed on Aug. 2, 2014

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