Chapter 7 Liquidation Bankruptcy Code
Chapter 7 of the Bankruptcy Code provides for "liquidation," or the sale of the debtor's nonexempt property and the distribution of the proceeds to creditors.
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. In Florida, the exemptions favor the debtor.
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.
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). U.S. Citizenship is not a prerequisite to filing Bankruptcy.
Subject to the means test 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 during the pre-filing credit counseling course a debt management plan is created, 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.
Note, however, that a Chapter 7 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.
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;
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 dependents. 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).
Note that the debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. 11 U.S.C. § 524(f).
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 bankruptcy 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 non dischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c).
Beware. 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).
Beyond guiding you through the Chapter 7 bankruptcy process, Brien Law Group P.L will instruct you as to the best course of action. Chapter 7 bankruptcy isn’t for everyone, and there are numerous factors to consider. No matter your situation, you can always trust Brien Law Group, P.L to provide honest legal counsel that helps with your debt.
Do not Let Debt Ruin Your Life!
Get Your Debt Absolved With the Help of Brien Law Group P.L.
Need a South Florida Chapter 7 Bankruptcy Attorney? 1-888-828-9009
If you need the assistance of a South Florida Chapter 7 Bankruptcy Attorney, please call us at 954-320-6940 or toll free at 888-828-9009 for a free, confidential consultation and for legal guidance.