Chapter 7 Bankruptcy Code

Chapter 7 Bankruptcy Code covers the various clauses related to the sale of a debtor's non-exempt property and the distribution of the proceeds to unsecured creditors based on the petition that meets with the approval of the Court. The process begins with the debtor filing a petition for Chapter 7 bankruptcy with the federal bankruptcy court along with the various statements defining his income and expenses, assets and liabilities, financial affairs, and the executory contracts and unexpired leases along with the certificate of credit counseling, etc.

When a petition is filed with the court, it results in an automatic stay on any proceedings initiated by the creditors to reclaim their outstanding, including wage garnishments, or telephone calls demanding payments. The Court will evaluate the petition on the submission of $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge.

The Court will appoint a trustee to overview the actions under Chapter 7 Bankruptcy Code who calls up a meeting of creditors between 20 and 40 days after the petition is filed. The trustee is to file a report on its opinion within 10 days of the creditors' meeting on the basis of the means test conducted on the financial position of the debtor. With the intention of ensuring an independent judgment the bankruptcy judges are prohibited from becoming participants in the creditors meeting wherein the petitioner or joint petitioners are questioned on the financial affairs and their property under oath by the trustee and the creditors.

Where it has been found that all the debtor's assets are exempt or subject to valid liens, which is stated by the debtor to the trustee in a "no asset" report, then there does not arise a situation wherein the assets gets liquidated and the amount is distributed to the unsecured creditors. But where there exists assets, the unsecured creditors are expected to file their claims with the court within 90 days after the first meeting of creditors. Section 726 of the Bankruptcy Code speaks of six classes of claims, with the claims to each class to be met in full before proceeding to the repayment of the next lower class.

Once the non-exempt assets are liquidated and distributed, the debtor gets discharged off his debts, preventing any further collection actions by the creditors, subject to certain exemptions. Never seek relief under Chapter 7 unless under extreme circumstances as it gets reflected on the credit standing for years’ to come.