The Law Office of Ben W. Koyl, P.C.
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Call 773.709.9539
For a Free Consultation
For a Free Consultation
Chapter 7 (Straight) Bankruptcy Information
Contact the Law Office
of Ben W. Koyl, P.C. for
a Free Consultation
at 773.709.9539 or
ben@chicagobklaw.com
for a Free Consultation
"We Will Help You." TM
of Ben W. Koyl, P.C. for
a Free Consultation
at 773.709.9539 or
ben@chicagobklaw.com
for a Free Consultation
"We Will Help You." TM
Office Locations:
Chicago Loop
Chicago South Side
Joliet
Chicago Loop
Chicago South Side
Joliet
Below is a summary of Chapter 7 Bankruptcy, but is not intended to be
comprehensive. Furthermore, this summary does not constitute legal advice.
comprehensive. Furthermore, this summary does not constitute legal advice.
Alternatives to Chapter 7 Bankruptcy
"Debtors should be aware that there are several alternatives to chapter 7 relief. For example,
debtors who are engaged in business, including corporations, partnerships, and sole
proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should
consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor
may seek an adjustment of debts, either by reducing the debt or by extending the time for
repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be
eligible for relief under chapter 13 of the Bankruptcy Code."
"In addition, individual debtors who have regular income may seek an adjustment of debts under
chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides
individual debtors with an opportunity to save their homes from foreclosure by allowing them to
"catch up" past due payments through a payment plan. Moreover, the court may dismiss a
chapter 7 case filed by an individual whose debts are primarily consumer rather than business
debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. §
707(b)."
"If the debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code
requires application of a "means test" to determine whether the chapter 7 filing is presumptively
abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of
certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor's
nonpriority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a
presumption of abuse only by a showing of special circumstances that justify additional
expenses or adjustments of current monthly income. Unless the debtor overcomes the
presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's
consent) or will be dismissed. 11 U.S.C. § 707(b)(1)."
"Debtors should also be aware that out-of-court agreements with creditors or debt counseling
services may provide an alternative to a bankruptcy filing."
debtors who are engaged in business, including corporations, partnerships, and sole
proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should
consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor
may seek an adjustment of debts, either by reducing the debt or by extending the time for
repayment, or may seek a more comprehensive reorganization. Sole proprietorships may also be
eligible for relief under chapter 13 of the Bankruptcy Code."
"In addition, individual debtors who have regular income may seek an adjustment of debts under
chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides
individual debtors with an opportunity to save their homes from foreclosure by allowing them to
"catch up" past due payments through a payment plan. Moreover, the court may dismiss a
chapter 7 case filed by an individual whose debts are primarily consumer rather than business
debts if the court finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. §
707(b)."
"If the debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code
requires application of a "means test" to determine whether the chapter 7 filing is presumptively
abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of
certain statutorily allowed expenses, is more than (i) $11,725, or (ii) 25% of the debtor's
nonpriority unsecured debt, as long as that amount is at least $7,025. (2) The debtor may rebut a
presumption of abuse only by a showing of special circumstances that justify additional
expenses or adjustments of current monthly income. Unless the debtor overcomes the
presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's
consent) or will be dismissed. 11 U.S.C. § 707(b)(1)."
"Debtors should also be aware that out-of-court agreements with creditors or debt counseling
services may provide an alternative to a bankruptcy filing."
Background
"A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13.
Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the
proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of
the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that
pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to
keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets.
Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result
in the loss of property."
Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the
proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of
the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that
pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to
keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets.
Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result
in the loss of property."
Chapter 7 Eligibility
"To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a
partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to
the means test described above for individual debtors, relief is available under chapter 7
irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An
individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180
days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear
before the court or comply with orders of the court, or the debtor voluntarily dismissed the
previous case after creditors sought relief from the bankruptcy court to recover property upon
which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a
debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180
days before filing, received credit counseling from an approved credit counseling agency either
in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency
situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are
insufficient approved agencies to provide the required counseling. If a debt management plan is
developed during required credit counseling, it must be filed with the court."
"One of the primary purposes of bankruptcy is to discharge certain debts to give an honest
individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7
case, however, a discharge is only available to individual debtors, not to partnerships or
corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a
discharge of debts, the right to a discharge is not absolute, and some types of debts are not
discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property."
partnership, or a corporation or other business entity. 11 U.S.C. §§ 101(41), 109(b). Subject to
the means test described above for individual debtors, relief is available under chapter 7
irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent. An
individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180
days a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear
before the court or comply with orders of the court, or the debtor voluntarily dismissed the
previous case after creditors sought relief from the bankruptcy court to recover property upon
which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a
debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180
days before filing, received credit counseling from an approved credit counseling agency either
in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency
situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are
insufficient approved agencies to provide the required counseling. If a debt management plan is
developed during required credit counseling, it must be filed with the court."
"One of the primary purposes of bankruptcy is to discharge certain debts to give an honest
individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7
case, however, a discharge is only available to individual debtors, not to partnerships or
corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a
discharge of debts, the right to a discharge is not absolute, and some types of debts are not
discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property."
How Chapter 7 Works
"A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the
area where the individual lives or where the business debtor is organized or has its principal
place of business or principal assets. (3) In addition to the petition, the debtor must also file
with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and
expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and
unexpired leases. Fed. R. Bankr. P. 1007(b). Debtors must also provide the assigned case
trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax
returns filed during the case (including tax returns for prior years that had not been filed when
the case began). 11 U.S.C. § 521. Individual debtors with primarily consumer debts have
additional document filing requirements. They must file: a certificate of credit counseling and a
copy of any debt repayment plan developed through credit counseling; evidence of payment
from employers, if any, received 60 days before filing; a statement of monthly net income and
any anticipated increase in income or expenses after filing; and a record of any interest the
debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife
may file a joint petition or individual petitions. 11 U.S.C. § 302(a). Even if filing jointly, a husband
and wife are subject to all the document filing requirements of individual debtors. (The Official
Forms may be purchased at legal stationery stores or downloaded from the internet at
www.uscourts.gov/bkforms/index.html. They are not available from the court.)"
"The courts must charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a
$15 trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With
the court's permission, however, individual debtors may pay in installments. 28 U.S.C. §
1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The
number of installments is limited to four, and the debtor must make the final installment no later
than 120 days after filing the petition. Fed. R. Bankr. P. 1006. For cause shown, the court may
extend the time of any installment, provided that the last installment is paid not later than 180
days after filing the petition. Id. The debtor may also pay the $39 administrative fee and the $15
trustee surcharge in installments. If a joint petition is filed, only one filing fee, one administrative
fee, and one trustee surcharge are charged. Debtors should be aware that failure to pay these
fees may result in dismissal of the case. 11 U.S.C. § 707(a)."
"If the debtor's income is less than 150% of the poverty level (as defined in the Bankruptcy
Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may
waive the requirement that the fees be paid. 28 U.S.C. § 1930(f)."
"In order to complete the Official Bankruptcy Forms that make up the petition, statement of
financial affairs, and schedules, the debtor must provide the following information:
A list of all creditors and the amount and nature of their claims;
The source, amount, and frequency of the debtor's income;
A list of all of the debtor's property; and
A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes,
transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are
filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a
situation where only one spouse files, the income and expenses of the non-filing spouse are
required so that the court, the trustee and creditors can evaluate the household's financial
position."
"Among the schedules that an individual debtor will file is a schedule of "exempt" property. The
Bankruptcy Code allows an individual debtor (4) to protect some property from the claims of
creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's
home state. 11 U.S.C. § 522(b). Many states have taken advantage of a provision in the
Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal
exemptions. In other jurisdictions, the individual debtor has the option of choosing between a
federal package of exemptions or the exemptions available under state law. Thus, whether
certain property is exempt and may be kept by the debtor is often a question of state law. The
debtor should consult an attorney to determine the exemptions available in the state where the
debtor lives."
"Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against
the debtor or the debtor's property. 11 U.S.C. § 362. But filing the petition does not stay certain
types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short
time in some situations. The stay arises by operation of law and requires no judicial action. As
long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage
garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice
of the bankruptcy case to all creditors whose names and addresses are provided by the debtor."
"Between 20 and 40 days after the petition is filed, the case trustee (described below) will hold
a meeting of creditors. If the U.S. trustee or bankruptcy administrator (5) schedules the meeting
at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the
meeting may be held no more than 60 days after the order for relief. Fed. R. Bankr. P. 2003(a).
During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors
may ask questions. The debtor must attend the meeting and answer questions regarding the
debtor's financial affairs and property. 11 U.S.C. § 343. If a husband and wife have filed a joint
petition, they both must attend the creditors' meeting and answer questions. Within 10 days of
the creditors' meeting, the U.S. trustee will report to the court whether the case should be
presumed to be an abuse under the means test described in 11 U.S.C. § 704(b)."
"It is important for the debtor to cooperate with the trustee and to provide any financial records or
documents that the trustee requests. The Bankruptcy Code requires the trustee to ask the
debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential
consequences of seeking a discharge in bankruptcy such as the effect on credit history, the
ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect
of reaffirming a debt. Some trustees provide written information on these topics at or before the
meeting to ensure that the debtor is aware of this information. In order to preserve their
independent judgment, bankruptcy judges are prohibited from attending the meeting of
creditors. 11 U.S.C. § 341(c)."
"In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert
a chapter 7 case to a case under chapter 11, 12, or 13 (6) as long as the debtor is eligible to be
a debtor under the new chapter. However, a condition of the debtor's voluntary conversion is that
the case has not previously been converted to chapter 7 from another chapter. 11 U.S.C. §
706(a). Thus, the debtor will not be permitted to convert the case repeatedly from one chapter to
another."
area where the individual lives or where the business debtor is organized or has its principal
place of business or principal assets. (3) In addition to the petition, the debtor must also file
with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and
expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and
unexpired leases. Fed. R. Bankr. P. 1007(b). Debtors must also provide the assigned case
trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax
returns filed during the case (including tax returns for prior years that had not been filed when
the case began). 11 U.S.C. § 521. Individual debtors with primarily consumer debts have
additional document filing requirements. They must file: a certificate of credit counseling and a
copy of any debt repayment plan developed through credit counseling; evidence of payment
from employers, if any, received 60 days before filing; a statement of monthly net income and
any anticipated increase in income or expenses after filing; and a record of any interest the
debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife
may file a joint petition or individual petitions. 11 U.S.C. § 302(a). Even if filing jointly, a husband
and wife are subject to all the document filing requirements of individual debtors. (The Official
Forms may be purchased at legal stationery stores or downloaded from the internet at
www.uscourts.gov/bkforms/index.html. They are not available from the court.)"
"The courts must charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a
$15 trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With
the court's permission, however, individual debtors may pay in installments. 28 U.S.C. §
1930(a); Fed. R. Bankr. P. 1006(b); Bankruptcy Court Miscellaneous Fee Schedule, Item 8. The
number of installments is limited to four, and the debtor must make the final installment no later
than 120 days after filing the petition. Fed. R. Bankr. P. 1006. For cause shown, the court may
extend the time of any installment, provided that the last installment is paid not later than 180
days after filing the petition. Id. The debtor may also pay the $39 administrative fee and the $15
trustee surcharge in installments. If a joint petition is filed, only one filing fee, one administrative
fee, and one trustee surcharge are charged. Debtors should be aware that failure to pay these
fees may result in dismissal of the case. 11 U.S.C. § 707(a)."
"If the debtor's income is less than 150% of the poverty level (as defined in the Bankruptcy
Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may
waive the requirement that the fees be paid. 28 U.S.C. § 1930(f)."
"In order to complete the Official Bankruptcy Forms that make up the petition, statement of
financial affairs, and schedules, the debtor must provide the following information:
A list of all creditors and the amount and nature of their claims;
The source, amount, and frequency of the debtor's income;
A list of all of the debtor's property; and
A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes,
transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are
filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a
situation where only one spouse files, the income and expenses of the non-filing spouse are
required so that the court, the trustee and creditors can evaluate the household's financial
position."
"Among the schedules that an individual debtor will file is a schedule of "exempt" property. The
Bankruptcy Code allows an individual debtor (4) to protect some property from the claims of
creditors because it is exempt under federal bankruptcy law or under the laws of the debtor's
home state. 11 U.S.C. § 522(b). Many states have taken advantage of a provision in the
Bankruptcy Code that permits each state to adopt its own exemption law in place of the federal
exemptions. In other jurisdictions, the individual debtor has the option of choosing between a
federal package of exemptions or the exemptions available under state law. Thus, whether
certain property is exempt and may be kept by the debtor is often a question of state law. The
debtor should consult an attorney to determine the exemptions available in the state where the
debtor lives."
"Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against
the debtor or the debtor's property. 11 U.S.C. § 362. But filing the petition does not stay certain
types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short
time in some situations. The stay arises by operation of law and requires no judicial action. As
long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage
garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice
of the bankruptcy case to all creditors whose names and addresses are provided by the debtor."
"Between 20 and 40 days after the petition is filed, the case trustee (described below) will hold
a meeting of creditors. If the U.S. trustee or bankruptcy administrator (5) schedules the meeting
at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the
meeting may be held no more than 60 days after the order for relief. Fed. R. Bankr. P. 2003(a).
During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors
may ask questions. The debtor must attend the meeting and answer questions regarding the
debtor's financial affairs and property. 11 U.S.C. § 343. If a husband and wife have filed a joint
petition, they both must attend the creditors' meeting and answer questions. Within 10 days of
the creditors' meeting, the U.S. trustee will report to the court whether the case should be
presumed to be an abuse under the means test described in 11 U.S.C. § 704(b)."
"It is important for the debtor to cooperate with the trustee and to provide any financial records or
documents that the trustee requests. The Bankruptcy Code requires the trustee to ask the
debtor questions at the meeting of creditors to ensure that the debtor is aware of the potential
consequences of seeking a discharge in bankruptcy such as the effect on credit history, the
ability to file a petition under a different chapter, the effect of receiving a discharge, and the effect
of reaffirming a debt. Some trustees provide written information on these topics at or before the
meeting to ensure that the debtor is aware of this information. In order to preserve their
independent judgment, bankruptcy judges are prohibited from attending the meeting of
creditors. 11 U.S.C. § 341(c)."
"In order to accord the debtor complete relief, the Bankruptcy Code allows the debtor to convert
a chapter 7 case to a case under chapter 11, 12, or 13 (6) as long as the debtor is eligible to be
a debtor under the new chapter. However, a condition of the debtor's voluntary conversion is that
the case has not previously been converted to chapter 7 from another chapter. 11 U.S.C. §
706(a). Thus, the debtor will not be permitted to convert the case repeatedly from one chapter to
another."
Role of the Case Trustee
"When a chapter 7 petition is filed, the U.S. trustee (or the bankruptcy court in Alabama and
North Carolina) appoints an impartial case trustee to administer the case and liquidate the
debtor's nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor's assets are exempt or
subject to valid liens, the trustee will normally file a "no asset" report with the court, and there
will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors
are no asset cases. But if the case appears to be an "asset" case at the outset, unsecured
creditors (7) must file their claims with the court within 90 days after the first date set for the
meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days
from the date the case is filed to file a claim. 11 U.S.C. § 502(b)(9). In the typical no asset
chapter 7 case, there is no need for creditors to file proofs of claim because there will be no
distribution. If the trustee later recovers assets for distribution to unsecured creditors, the
Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of
claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to
preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a
chapter 7 case who has a lien on the debtor's property should consult an attorney for advice."
"Commencement of a bankruptcy case creates an "estate." The estate technically becomes the
temporary legal owner of all the debtor's property. It consists of all legal or equitable interests of
the debtor in property as of the commencement of the case, including property owned or held
by another person if the debtor has an interest in the property. Generally speaking, the debtor's
creditors are paid from nonexempt property of the estate."
"The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt
assets in a manner that maximizes the return to the debtor's unsecured creditors. The trustee
accomplishes this by selling the debtor's property if it is free and clear of liens (as long as the
property is not exempt) or if it is worth more than any security interest or lien attached to the
property and any exemption that the debtor holds in the property. The trustee may also attempt
to recover money or property under the trustee's "avoiding powers." The trustee's avoiding
powers include the power to: set aside preferential transfers made to creditors within 90 days
before the petition; undo security interests and other prepetition transfers of property that were
not properly perfected under nonbankruptcy law at the time of the petition; and pursue
nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available
under state law. In addition, if the debtor is a business, the bankruptcy court may authorize the
trustee to operate the business for a limited period of time, if such operation will benefit
creditors and enhance the liquidation of the estate. 11 U.S.C. § 721."
"Section 726 of the Bankruptcy Code governs the distribution of the property of the estate.
Under § 726, there are six classes of claims; and each class must be paid in full before the
next lower class is paid anything. The debtor is only paid if all other classes of claims have
been paid in full. Accordingly, the debtor is not particularly interested in the trustee's disposition
of the estate assets, except with respect to the payment of those debts which for some reason
are not dischargeable in the bankruptcy case. The individual debtor's primary concerns in a
chapter 7 case are to retain exempt property and to receive a discharge that covers as many
debts as possible."
North Carolina) appoints an impartial case trustee to administer the case and liquidate the
debtor's nonexempt assets. 11 U.S.C. §§ 701, 704. If all the debtor's assets are exempt or
subject to valid liens, the trustee will normally file a "no asset" report with the court, and there
will be no distribution to unsecured creditors. Most chapter 7 cases involving individual debtors
are no asset cases. But if the case appears to be an "asset" case at the outset, unsecured
creditors (7) must file their claims with the court within 90 days after the first date set for the
meeting of creditors. Fed. R. Bankr. P. 3002(c). A governmental unit, however, has 180 days
from the date the case is filed to file a claim. 11 U.S.C. § 502(b)(9). In the typical no asset
chapter 7 case, there is no need for creditors to file proofs of claim because there will be no
distribution. If the trustee later recovers assets for distribution to unsecured creditors, the
Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of
claim. Although a secured creditor does not need to file a proof of claim in a chapter 7 case to
preserve its security interest or lien, there may be other reasons to file a claim. A creditor in a
chapter 7 case who has a lien on the debtor's property should consult an attorney for advice."
"Commencement of a bankruptcy case creates an "estate." The estate technically becomes the
temporary legal owner of all the debtor's property. It consists of all legal or equitable interests of
the debtor in property as of the commencement of the case, including property owned or held
by another person if the debtor has an interest in the property. Generally speaking, the debtor's
creditors are paid from nonexempt property of the estate."
"The primary role of a chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt
assets in a manner that maximizes the return to the debtor's unsecured creditors. The trustee
accomplishes this by selling the debtor's property if it is free and clear of liens (as long as the
property is not exempt) or if it is worth more than any security interest or lien attached to the
property and any exemption that the debtor holds in the property. The trustee may also attempt
to recover money or property under the trustee's "avoiding powers." The trustee's avoiding
powers include the power to: set aside preferential transfers made to creditors within 90 days
before the petition; undo security interests and other prepetition transfers of property that were
not properly perfected under nonbankruptcy law at the time of the petition; and pursue
nonbankruptcy claims such as fraudulent conveyance and bulk transfer remedies available
under state law. In addition, if the debtor is a business, the bankruptcy court may authorize the
trustee to operate the business for a limited period of time, if such operation will benefit
creditors and enhance the liquidation of the estate. 11 U.S.C. § 721."
"Section 726 of the Bankruptcy Code governs the distribution of the property of the estate.
Under § 726, there are six classes of claims; and each class must be paid in full before the
next lower class is paid anything. The debtor is only paid if all other classes of claims have
been paid in full. Accordingly, the debtor is not particularly interested in the trustee's disposition
of the estate assets, except with respect to the payment of those debts which for some reason
are not dischargeable in the bankruptcy case. The individual debtor's primary concerns in a
chapter 7 case are to retain exempt property and to receive a discharge that covers as many
debts as possible."
The Chapter 7 Discharge
"A discharge releases individual debtors from personal liability for most debts and
prevents the creditors owed those debts from taking any collection actions against the
debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should
consult competent legal counsel before filing to discuss the scope of the discharge.
Generally, excluding cases that are dismissed or converted, individual debtors receive a
discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in
interest files a complaint objecting to the discharge or a motion to extend the time to
object, the bankruptcy court will issue a discharge order relatively early in the case –
generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr.
P. 4004(c)."
"The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow
and are construed against the moving party. Among other reasons, the court may deny the
debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or
financial records; failed to explain satisfactorily any loss of assets; committed a
bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court;
fraudulently transferred, concealed, or destroyed property that would have become
property of the estate; or failed to complete an approved instructional course concerning
financial management. 11 U.S.C. § 727; Fed. R. Bankr. P. 4005."
"Secured creditors may retain some rights to seize property securing an underlying debt
even after a discharge is granted. Depending on individual circumstances, if a debtor
wishes to keep certain secured property (such as an automobile), he or she may decide
to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor
that the debtor will remain liable and will pay all or a portion of the money owed, even
though the debt would otherwise be discharged in the bankruptcy. In return, the creditor
promises that it will not repossess or take back the automobile or other property so long
as the debtor continues to pay the debt."
"If the debtor decides to reaffirm a debt, he or she must do so before the discharge is
entered. The debtor must sign a written reaffirmation agreement and file it with the court.
11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain
an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the
disclosures must advise the debtor of the amount of the debt being reaffirmed and how it
is calculated and that reaffirmation means that the debtor's personal liability for that debt
will not be discharged in the bankruptcy. The disclosures also require the debtor to sign
and file a statement of his or her current income and expenses which shows that the
balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance
is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship,
and the court may decide not to approve the reaffirmation agreement. Unless the debtor is
represented by an attorney, the bankruptcy judge must approve the reaffirmation
agreement."
"If the debtor was represented by an attorney in connection with the reaffirmation
agreement, the attorney must certify in writing that he or she advised the debtor of the
legal effect and consequences of the agreement, including a default under the
agreement. The attorney must also certify that the debtor was fully informed and voluntarily
made the agreement and that reaffirmation of the debt will not create an undue hardship
for the debtor or the debtor's dependants. 11 U.S.C. § 524(k). The Bankruptcy Code
requires a reaffirmation hearing if the debtor has not been represented by an attorney
during the negotiating of the agreement, or if the court disapproves the reaffirmation
agreement. 11 U.S.C. § 524(d) and (m). The debtor may repay any debt voluntarily,
however, whether or not a reaffirmation agreement exists. 11 U.S.C. § 524(f)."
"An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy
case. A creditor may no longer initiate or continue any legal or other action against the
debtor to collect a discharged debt. But not all of an individual's debts are discharged in
chapter 7. Debts not discharged include debts for alimony and child support, certain
taxes, debts for certain educational benefit overpayments or loans made or guaranteed by
a governmental unit, debts for willful and malicious injury by the debtor to another entity or
to the property of another entity, debts for death or personal injury caused by the debtor's
operation of a motor vehicle while the debtor was intoxicated from alcohol or other
substances, and debts for certain criminal restitution orders. 11 U.S.C. § 523(a). The
debtor will continue to be liable for these types of debts to the extent that they are not paid
in the chapter 7 case. Debts for money or property obtained by false pretenses, debts for
fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious
injury by the debtor to another entity or to the property of another entity will be discharged
unless a creditor timely files and prevails in an action to have such debts declared
nondischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c)."
"The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or
the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor
acquired property that is property of the estate and knowingly and fraudulently failed to
report the acquisition of such property or to surrender the property to the trustee, or if the
debtor (without a satisfactory explanation) makes a material misstatement or fails to
provide documents or other information in connection with an audit of the debtor's case.
11 U.S.C. § 727(d)."
NOTES
"The "current monthly income" received by the debtor is a defined term in the Bankruptcy
Code and means the average monthly income received over the six calendar months
before commencement of the bankruptcy case, including regular contributions to
household expenses from nondebtors and including income from the debtor's spouse if
the petition is a joint petition, but not including social security income or certain payments
made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A). "
"To determine whether a presumption of abuse arises, all individual debtors with
primarily consumer debts who file a chapter 7 case must complete Official Bankruptcy
Form B22A, entitled "Statement of Current Monthly Income and Means Test Calculation -
For Use in Chapter 7." (The Official Forms may be purchased at legal stationery stores or
downloaded from the internet at www.uscourts.gov/bkforms/index.html. They are not
available from the court.) "
"An involuntary chapter 7 case may be commenced under certain circumstances by a
petition filed by creditors holding claims against the debtor. 11 U.S.C. § 303. return to text
Each debtor in a joint case (both husband and wife) can claim exemptions under the
federal bankruptcy laws. 11 U.S.C. § 522(m)."
"In North Carolina and Alabama, bankruptcy administrators perform similar functions that
U.S. trustees perform in the remaining 48 states. These duties include establishing a
panel of private trustees to serve as trustees in chapter 7 cases and supervising the
administration of cases and trustees in cases under chapters 7, 11, 12, and 13 of the
Bankruptcy Code. The bankruptcy administrator program is administered by the
Administrative Office of the United States Courts, while the U.S. trustee program is
administered by the Department of Justice. For purposes of this publication, references to
U.S. trustees are also applicable to bankruptcy administrators. "
"A fee is charged for converting, on request of the debtor, a case under chapter 7 to a case
under chapter 11. The fee charged is the difference between the filing fee for a chapter 7
and the filing fee for a chapter 11. 28 U.S.C. § 1930(a). Currently, the difference is $755.
Id. There is no fee for converting from chapter 7 to chapter 13. "
"Unsecured debts generally may be defined as those for which the extension of credit
was based purely upon an evaluation by the creditor of the debtor's ability to pay, as
opposed to secured debts, for which the extension of credit was based upon the creditor's
right to seize collateral on default, in addition to the debtor's ability to pay. "
prevents the creditors owed those debts from taking any collection actions against the
debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should
consult competent legal counsel before filing to discuss the scope of the discharge.
Generally, excluding cases that are dismissed or converted, individual debtors receive a
discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in
interest files a complaint objecting to the discharge or a motion to extend the time to
object, the bankruptcy court will issue a discharge order relatively early in the case –
generally, 60 to 90 days after the date first set for the meeting of creditors. Fed. R. Bankr.
P. 4004(c)."
"The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow
and are construed against the moving party. Among other reasons, the court may deny the
debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or
financial records; failed to explain satisfactorily any loss of assets; committed a
bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court;
fraudulently transferred, concealed, or destroyed property that would have become
property of the estate; or failed to complete an approved instructional course concerning
financial management. 11 U.S.C. § 727; Fed. R. Bankr. P. 4005."
"Secured creditors may retain some rights to seize property securing an underlying debt
even after a discharge is granted. Depending on individual circumstances, if a debtor
wishes to keep certain secured property (such as an automobile), he or she may decide
to "reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor
that the debtor will remain liable and will pay all or a portion of the money owed, even
though the debt would otherwise be discharged in the bankruptcy. In return, the creditor
promises that it will not repossess or take back the automobile or other property so long
as the debtor continues to pay the debt."
"If the debtor decides to reaffirm a debt, he or she must do so before the discharge is
entered. The debtor must sign a written reaffirmation agreement and file it with the court.
11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain
an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the
disclosures must advise the debtor of the amount of the debt being reaffirmed and how it
is calculated and that reaffirmation means that the debtor's personal liability for that debt
will not be discharged in the bankruptcy. The disclosures also require the debtor to sign
and file a statement of his or her current income and expenses which shows that the
balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance
is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship,
and the court may decide not to approve the reaffirmation agreement. Unless the debtor is
represented by an attorney, the bankruptcy judge must approve the reaffirmation
agreement."
"If the debtor was represented by an attorney in connection with the reaffirmation
agreement, the attorney must certify in writing that he or she advised the debtor of the
legal effect and consequences of the agreement, including a default under the
agreement. The attorney must also certify that the debtor was fully informed and voluntarily
made the agreement and that reaffirmation of the debt will not create an undue hardship
for the debtor or the debtor's dependants. 11 U.S.C. § 524(k). The Bankruptcy Code
requires a reaffirmation hearing if the debtor has not been represented by an attorney
during the negotiating of the agreement, or if the court disapproves the reaffirmation
agreement. 11 U.S.C. § 524(d) and (m). The debtor may repay any debt voluntarily,
however, whether or not a reaffirmation agreement exists. 11 U.S.C. § 524(f)."
"An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy
case. A creditor may no longer initiate or continue any legal or other action against the
debtor to collect a discharged debt. But not all of an individual's debts are discharged in
chapter 7. Debts not discharged include debts for alimony and child support, certain
taxes, debts for certain educational benefit overpayments or loans made or guaranteed by
a governmental unit, debts for willful and malicious injury by the debtor to another entity or
to the property of another entity, debts for death or personal injury caused by the debtor's
operation of a motor vehicle while the debtor was intoxicated from alcohol or other
substances, and debts for certain criminal restitution orders. 11 U.S.C. § 523(a). The
debtor will continue to be liable for these types of debts to the extent that they are not paid
in the chapter 7 case. Debts for money or property obtained by false pretenses, debts for
fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious
injury by the debtor to another entity or to the property of another entity will be discharged
unless a creditor timely files and prevails in an action to have such debts declared
nondischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c)."
"The court may revoke a chapter 7 discharge on the request of the trustee, a creditor, or
the U.S. trustee if the discharge was obtained through fraud by the debtor, if the debtor
acquired property that is property of the estate and knowingly and fraudulently failed to
report the acquisition of such property or to surrender the property to the trustee, or if the
debtor (without a satisfactory explanation) makes a material misstatement or fails to
provide documents or other information in connection with an audit of the debtor's case.
11 U.S.C. § 727(d)."
NOTES
"The "current monthly income" received by the debtor is a defined term in the Bankruptcy
Code and means the average monthly income received over the six calendar months
before commencement of the bankruptcy case, including regular contributions to
household expenses from nondebtors and including income from the debtor's spouse if
the petition is a joint petition, but not including social security income or certain payments
made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A). "
"To determine whether a presumption of abuse arises, all individual debtors with
primarily consumer debts who file a chapter 7 case must complete Official Bankruptcy
Form B22A, entitled "Statement of Current Monthly Income and Means Test Calculation -
For Use in Chapter 7." (The Official Forms may be purchased at legal stationery stores or
downloaded from the internet at www.uscourts.gov/bkforms/index.html. They are not
available from the court.) "
"An involuntary chapter 7 case may be commenced under certain circumstances by a
petition filed by creditors holding claims against the debtor. 11 U.S.C. § 303. return to text
Each debtor in a joint case (both husband and wife) can claim exemptions under the
federal bankruptcy laws. 11 U.S.C. § 522(m)."
"In North Carolina and Alabama, bankruptcy administrators perform similar functions that
U.S. trustees perform in the remaining 48 states. These duties include establishing a
panel of private trustees to serve as trustees in chapter 7 cases and supervising the
administration of cases and trustees in cases under chapters 7, 11, 12, and 13 of the
Bankruptcy Code. The bankruptcy administrator program is administered by the
Administrative Office of the United States Courts, while the U.S. trustee program is
administered by the Department of Justice. For purposes of this publication, references to
U.S. trustees are also applicable to bankruptcy administrators. "
"A fee is charged for converting, on request of the debtor, a case under chapter 7 to a case
under chapter 11. The fee charged is the difference between the filing fee for a chapter 7
and the filing fee for a chapter 11. 28 U.S.C. § 1930(a). Currently, the difference is $755.
Id. There is no fee for converting from chapter 7 to chapter 13. "
"Unsecured debts generally may be defined as those for which the extension of credit
was based purely upon an evaluation by the creditor of the debtor's ability to pay, as
opposed to secured debts, for which the extension of credit was based upon the creditor's
right to seize collateral on default, in addition to the debtor's ability to pay. "
Law Office of Ben W. Koyl, P.C.
17 North State Street
Suite 1700
Chicago, IL 60602
ph: 773.709.9539
ben@chicagobklaw.com
17 North State Street
Suite 1700
Chicago, IL 60602
ph: 773.709.9539
ben@chicagobklaw.com
The Law Office of Ben W. Koyl, P.C. is a Debt Relief
Agency helping people file for bankruptcy under the
United States Bankruptcy Code
Copyright 2011 Law Office of Ben W. Koyl, P.C., All
rights reserved.
Agency helping people file for bankruptcy under the
United States Bankruptcy Code
Copyright 2011 Law Office of Ben W. Koyl, P.C., All
rights reserved.
The above quoted portions were taken from the United States Courts website and may
be found at:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx
be found at:
http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspx
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