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The chapter 7 law of bankruptcy aims at giving a fresh start to a person who is too heavily burdened with debt to discharge it in a normal manner. Since chapter 7 completely wipes out his debts, it is also known as a 'liquidation bankruptcy', as opposed to chapter 13, which is known as 'repayment' bankruptcy. This is because the debtor has to make some payment in chapter 13, whether whole or partial, to discharge his debts. Since in chapter 13, the bankruptcy court approves the payment plans, the creditors are bound to accept whatever is paid to them.
In chapter 7, however, unsecured loans are completely discharged and the debtor is left to pay only secured loans, such as car loans or home mortgages. This makes it possible for him to retain his physical assets. In chapter 7, the debtor can only keep the property that is legally exempted. Chapter 7 bankruptcy cases are usually decided within a period of four to six months from the date the petition is filed.
The court appoints a trustee, usually a lawyer, who helps administer justice. The trustee examines the documents of the debtor to ensure that he is not hiding any property or trying to exempt it from being sold to pay of his debts. He holds meetings between the debtor and his creditors to examine his actual assets or his capability to pay off his debts.
Chapter 7 has certain eligibility criteria for those who file for it. You must be an individual, a married couple or a businessman, either a sole proprietor or a partner. Moreover, under chapter 7 bankruptcy law, you can file for bankruptcy once in six years. Another condition is that if your petition for filing for bankruptcy has been dismissed in the preceding 180 days, you cannot file for bankruptcy under chapter 7. Also, you have to be very honest about your debts and assets both to the court and creditors. Otherwise, your petition will be dismissed by the court.