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Chapter 7 Summary
LAWDOG is intended to assist in the understanding of basic concepts. See Disclaimer. Always obtain legal advice from legal professionals.
Involuntary Bankruptcy
Generally, any person who resides or has a domicile, a place of business, or property in the United States, may file a bankruptcy. ''Person'', as defined under Section 101 (41) of the Bankruptcy Code, includes individual, partnership, and corporation, but not most governmental units. Any individual, partnership, or corporation, except railroads, domestic banks and insurance companies, and a few other exceptions, may qualify to file under Chapter 7 of the Bankruptcy Code. A Chapter 7 is a liquidation bankruptcy wherein non-exempt property of the debtor is liquidated.
If a debtor had filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, he may not be able to file a second petition. If a prior Chapter 7 discharge was granted or denied within the last 6 years, or if a debtor completed a prior Chapter 13 plan , he may not be entitled to a discharge in a second Chapter 7 bankruptcy. See Section 109 (g) of the Bankruptcy Code reproduced here for illustration purposes only.
Property Claimed As Exempt By Debtor
Proof Of Claim
A Proof Of Claim is a document, filed with the Bankruptcy Court, and used to substantiate the claim of a creditor. It generally must be filed by a creditor, and it may determine whether or not an unsecured creditor will be paid, and the amount of such payment. In the case of a secured creditor, the failure to file a Proof Of Claim generally may not affect the security interest of the creditor in the collateral. Unsecured creditors generally must file a Proof Of Claim in order to have a claim allowed by the Bankruptcy Court. See "Proof of Claim" from previous menu or click here. Link does not return to this page.
Liquidation Of Non-Exempt Assets
After exemptions claimed by individual debtors, the balance of the debtor's assets, referred to as "nonexempt" assets, are "liquidated" by a trustee. In cases where there are assets to be distributed, the trustee will generally submit a final report to the Bankruptcy Court for approval, and make payments to creditors according to their respective rights to payment. Many Chapter 7 cases, referred to as a "no asset cases", involve no non-exempt assets, with no recovery to creditors. See "Priority of Payment" from prior menu, or click here. Link does not return to this page.
A discharge generally relieves a Chapter 7 debtor from all debts incurred prior to the filing of the bankruptcy. A creditor is permanently prevented from attempting to collect such debts from the debtor or the property of the debtor. However, under certain limited and specific circumstances prescribed under the Bankruptcy Code, the court may deny a discharge to the debtor, or may declare certain debts nondischargeable. See Section 727 reproduced here for illustration purposes only.
"Nondischargeable" Debts
The discharge in a Chapter 7 does not discharge an individual debtor from any debt excepted from discharge under Section 523 of the Bankruptcy Code. A creditor may file an adversary proceeding to object to the discharge of a specific debt which qualifies. See "Discharge" and "Exceptions From Discharge" from prior menu, or click here. Link does not return to this page.
Automatic Stay Applies To All Chapters
An automatic stay is a statutory "order", effective upon the filing of a bankruptcy, which protects the debtor and prohibits actions by creditors. The "automatic stay" arises automatically, and does not require any specific order by a judge. Generally, all acts against the debtor or the property of the debtor MUST CEASE upon the filing of a bankruptcy. See Automatic Stay from previous menu or click here. Link does not return to this page.
Creditors holding claims against a debtor may, under certain circumstances, initiate a Chapter 7 or Chapter 11 case by filing an involuntary petition against the debtor. Creditors, as a group, may sometimes gain by causing an involuntary filing. Where the debtor is dissipating assets, an involuntary bankruptcy may prevent further losses. In some situations, it may be possible for the trustee to recover "avoidable transfers" which occurred within 90 days prior to the filing of an involuntary petition. For "insiders" who receive preferential transfers, and for fraudulent conveyances, this period may be extended to one year. See Section 303 of the Bankruptcy Code reproduced here for illustration purposes only. For more information, see Involuntary Bankruptcy here. Link does not return to this page.
