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When a debtor becomes insolvent and the bankruptcy proceeding begins, the debtor will either liquidate its assets or reorganize its debts The liquidation route is governed by chapter 7 of the bankruptcy code. Liquidation under chapter 7 is a common form of bankruptcy It is available to individuals who cannot make regular, monthly, payments toward their debts
Chapter 7 provides relief to debtors regardless of the amount of debts owed or whether a debtor is solvent or insolvent. The means test determines eligibility for chapter 7 by comparing income to state medians.
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