Which statement about Chapter 7 bankruptcy is true?

Which statement about Chapter 7 bankruptcy is true?

• A. It involves the reorganization of the debtor's finances to repay debts over time
• B. It involves liquidation of non-exempt property to cash and payment of creditors to the extent possible
• C. It validates debts and extends terms
• D. It protects debts from collection indefinitely

Answer: (B)

Chapter 7 is about liquidation. In this option, a bankruptcy trustee may sell the debtor’s non-exempt assets to raise cash and pay creditors to the extent possible, with most unsecured debts then discharged to give the debtor a fresh start. Exempt assets can be kept, and exemptions vary by state, but the key point is converting non-exempt property into cash to satisfy creditors. The idea of reorganizing finances to repay over time belongs to Chapter 13 (and Chapter 11 for businesses), not Chapter 7. The notion of validating debts and extending terms isn’t how Chapter 7 operates—it doesn’t extend or restructure debts, it provides a discharge after liquidation. And there isn’t indefinite protection from collection; the discharge ends many debts, though some debts may survive or be non-dischargeable.

Chapter 7 is about liquidation. In this option, a bankruptcy trustee may sell the debtor’s non-exempt assets to raise cash and pay creditors to the extent possible, with most unsecured debts then discharged to give the debtor a fresh start. Exempt assets can be kept, and exemptions vary by state, but the key point is converting non-exempt property into cash to satisfy creditors.

The idea of reorganizing finances to repay over time belongs to Chapter 13 (and Chapter 11 for businesses), not Chapter 7. The notion of validating debts and extending terms isn’t how Chapter 7 operates—it doesn’t extend or restructure debts, it provides a discharge after liquidation. And there isn’t indefinite protection from collection; the discharge ends many debts, though some debts may survive or be non-dischargeable.