Chapter 7 Liquidations


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Chapter 7 Liquidation

In a chapter 7 case, an individual who is called a "trustee" is appointed to administer the debtor’s bankruptcy estate. The debtor has a creditor’s meeting where the chapter 7 trustee, creditors and interested parties are allowed to attend and asks questions concerning the debtor’s financial affairs. In most chapter 7 bankruptcy cases, this is the only appearance the debtor will make in the case.

 In a chapter 7 case, the trustee has the power to pursue and recover voluntary and involuntary transfers of the debtor’s property. This is designed to promote equality among creditors. In the event that there is nonexempt property or property recovered by the trustee, the trustee makes distributions of the property to creditors based upon their respective priorities.

 Generally, if no creditor objects to the discharge of their particular claim or to all of the debtor’s indebtedness within sixty (60) days from the creditor’s meeting, the debtor’s discharge is granted. Once a debtor receives a discharge under chapter 7, the debtor cannot file another chapter 7 case for eight (8) years.

 Some debts are not discharged. If and when the debtor receives a discharge, these debts survive the debtor’s bankruptcy. For example, these include debts for:

  • Certain taxes;
  • Fines and penalties;
  • Alimony and child support;
  • Student loans;
  • Debts for fraud;
  • Embezzlement; and
  •  Willful and malicious injury to person or property.

 Under the bankruptcy code, a chapter 7 debtor may keep property that is subject to a lien and continue making payments after the debtor receives a discharge. If the debtor wishes to retain property that is secured by the claim of a creditor, the debtor will be required to file a reaffirmation agreement with the bankruptcy court. Once this agreement is approved by the court, the debtor will be liable for any default and his or her discharge does not prevent the creditor form enforcing its rights against the debtor or the property.

For example, where the debtor is current on his or her automobile payments but has extensive hospital bills, business debt and credit cards debts beyond his or her ability to pay, the debtor may be able to keep the automobile and discharge the other indebtedness. However, if the debtor defaults on the automobile loan a year after the debtor receives his or her discharge, the creditor can repossess the automobile and recover a judgment against the debtor for any balance due and enforce that judgment against the debtor.

In 2005, Congress amended the bankruptcy code substantially. One of the most significant amendments was to change the eligibility requirements for chapter 7 debtors. Now, the debtor must, among other things, complete a consumer credit course prior to the filing of the bankruptcy case and complete a financial management course before the entry of a discharge.

 More importantly, if the debts consist primarily of consumer obligations versus primarily business debts, the debtor must pass what is known as the "means test." The means test is based upon national and local standards adopted by the Internal Revenue Service for collection and enforcement purposes. If the debtor’s income and expenses do not pass the means test, the debtor must file either a chapter 11 or chapter 13 case in order for the debtor to take advantage of the benefits of the bankruptcy code.


The Law Offices Of Nicholas B Bangos assists clients with Bankruptcy / Insolvency in Florida area including Coral Gables, Miami Dade and Broward County.


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