Why Irs Form 13844 Bankruptcy 2025

My name is Miranda Chick, and I'm a CPA. Chapter 7 bankruptcy refers to a section of the US Bankruptcy Code that prescribes the process for liquidation. This is the most common form of bankruptcy filed for in the US. The primary purpose of this is to give honest individual debtors a fresh start, and they do so by discharging debts. This means that the debtor is no longer liable for those debts. A discharge is only available to individuals and not to businesses. For individuals, they first get to choose or keep certain exempt property. The purpose of this is to ensure that the debtor has the assets they need for day-to-day basis. The definition of exempt property differs at the federal level and from state to state, but generally, individuals are allowed to take the most advantageous definition of exempt property regardless of which definition. Examples of exempt property often include 401k or pension plans. Most unsecured debts will be discharged. If there is any non-exempt property, the court-appointed trustee will liquidate those assets and distribute the proceeds to creditors. It is important to note that certain debts actually survive bankruptcy, such as mortgages, car loans, alimony, child support, and taxes for recent years. The debtor will still be liable for these debts. As for businesses, when a business is heavily in debt and can no longer pay their banks, bondholders, or vendors, they can voluntarily or sometimes be forced into a chapter 7 liquidation bankruptcy. The court appoints a trustee who will sell the business assets and distribute the proceeds to creditors. However, certain property is not available to the trustee, such as security used to collateralize a loan for bondholders. These bondholders still have a legally enforceable right to the collateral and will recover their debt...