Chapter 7 Bankruptcy Liquidation. CPA Exam REG

In this video, I discuss chapter 7 bankruptcy liquidation as covered on the CPA exam.
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Federal bankruptcy law in the United States aims to offer a "fresh start" to honest debtors by eliminating most of their debts. This process is known as a discharge, which frees the debtor from personal liability for these debts. However, there are exceptions and scenarios where this discharge can be contested or denied. Here's a breakdown of these scenarios with examples:

Debtor Not an Individual: Chapter 7 bankruptcy discharges are meant for individuals, not corporations or other artificial entities. For instance, if a company files for Chapter 7, it typically ends up being dissolved at the case's conclusion, effectively nullifying its debts.

Example: John, an individual, can file for a Chapter 7 discharge, but XYZ Corporation cannot.

Fraudulent Transfers or Concealment of Property: If a debtor intentionally hides, transfers, or destroys property to avoid paying creditors, they are not entitled to a discharge.

Example: If Sarah transfers her expensive jewelry to her friend to avoid it being used to pay her debts right before filing for bankruptcy, this could be grounds for denying her discharge.

Unjustifiably Failed to Keep Books and Records: If a debtor fails to maintain proper financial records, making it hard to ascertain their financial situation or transactions, their discharge can be denied.

Example: If Mike, a small business owner, does not maintain proper financial records and it's impossible to determine his business transactions, he might be denied a discharge.

Prior Discharge Within Eight Years: A debtor can only receive a Chapter 7 discharge once in an eight-year period.

Example: If Lisa received a discharge under Chapter 7 six years ago, she cannot receive another discharge until eight years have passed since her last discharge.

In addition to these, there are two main ways creditors can challenge a discharge:

Objections to Discharge: This can nullify the entire bankruptcy case, preventing any debts from being discharged.
Nondischargeable Debts: This applies to specific debts, ensuring they survive the bankruptcy process.
Overall, while bankruptcy offers a way out of overwhelming debt, there are strict rules and conditions to prevent abuse of the system.








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