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Chapter 7 Liquidation

Chapter 7 is the liquidation chapter of the Bankruptcy Code. It is also known as a straight bankruptcy. In a Chapter 7 liquidation, the goal is the liquidation of the debtor's non-exempted property for the benefit of creditors. if the debtor is an individual, the debtor may be entitled to a discharge of debts. This discharge will afford the individual a fresh start. However, discharge of debts is not automatic.

Individuals, partnerships and corporations can file for Chapter 7 bankruptcy. Relief is available irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent.

Under chapter 7, a trustee is appointed to collect and turn into cash, all of the debtor's property that is not exempt from the bankruptcy proceeding.  The filling of a chapter 7 petition will result in a discharge of most of the debts listed on the bankruptcy schedules.  Debts that can not be discharged include, for example, most taxes; child support or alimony; most student loans; court fines and criminal restitution; and debts that were incurred through fraud or deceit.  Secured portion of the secured claims such as mortgages or car loans are also not dischargeable.

A Chapter 7 proceeding may be initiated voluntarily or involuntarily. The debtor may file a petition to commence a voluntary proceeding. Involuntary proceedings commence when creditors with the requisite amount of unsecured debt join to force the debtor into involuntary bankruptcy. Additionally, creditors in a Chapter 11 or Chapter 13 proceeding may also force a non-cooperating debtor into a Chapter 7 proceeding through a conversion.

In some of the cards issued by department stores or other chain stores, security interest is placed on items  purchased, such as appliances, electronics, or furniture, etc. As with all other secured debts, debtors may choose to affirm or redeem the debts, or to abandon the property.

After the petition is filed, an automotive stay order will be in effect preventing any creditors from collecting debts.  In about a month, a 341 (a) meeting of creditors will be scheduled.  At the meeting, the trustee will examine the debtor under oath regarding his/her assets and liabilities.  Creditors will have 60 days after the meeting to object the discharge of the debts.  After the 60 days, the court, in the absence of any challenges, will issue an order of discharge.  A discharge may be denied if, for example, the debtor destroys or hides property, destroys, hides or falsifies records, makes a false oath, or disobeys a court order.

For a step-by-step instruction to retain us to file a chapter 7 online, please go to home page. 

 The United States trustee is required to establish, maintain, and supervise a panel of private trustees eligible to serve as trustees under chapter 7. A trustee in chapter 7 cases is a private individual appointed by the United States Trustee. Any individual who is competent to perform the duties of a trustee and reside or have an office in the judicial or adjacent judicial district is eligible to be appointed as a trustee.

To avoid delay in administration of the case, an interim trustee is appointed by the court from the panel of private trustees promptly after filing of the petition and entry of the order for relief. The interim trustee will become permanent trustee if no objection is made prior to or at the 341(a) Meeting of Creditors.

The trustee has the responsibility to administer the bankruptcy estate, which consists of all of the debtor’s non-exempt property as of the date of filing. General duties of the trustee include the following: