Chapter 7 Bankruptcy Creditors

Chapter 7 bankruptcy provides for the liquidation of the assets of the debtor and the distribution of the proceeds amongst the creditors in the agreed proportion. When the debtor makes the decision to proceed with liquidation, he is to submit a list of creditors, the type of claims and the amount due to them along with the petition for bankruptcy. When a petition is filed with the court, the creditors are informed of the same by a notice sent by the bankruptcy clerk and the law prevents any kind of collection procedure, any step to initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments from the part of the creditors.

A trustee is appointed by the court to oversee the matters related to the petition and inform the court on its findings for the final decision. The trustee is to hold a meeting of the creditors between 20 and 40 days after the petition is filed. During this meeting the debtor is placed under oath with the creditors and the trustee putting forth any questions they have regarding the financial statements presented by him in the court. The bankruptcy judges stay away from these meetings to ensure a non-biased decision on the petition.

Where the debtor files for a no-asset petition under Chapter 7, there will not arise a situation for the redistribution of the proceeds. If there exists some non-exempt assets, then the Chapter 7 bankruptcy demands the creditors to file their claims with the court within 90 days after the first date for the meeting of creditors.

Even though the law does not require a secured creditor to file a proof of his claim, it is always wiser for him to seek the professional expertise of a lawyer to ensure maximum return.

When the Chapter 7 bankruptcy petition meets with the approval of the federal bankruptcy court, the trustee sells the debtor's non-exempt assets and utilizes them for the repayment of the claims of the creditors in accordance with the provisions stipulated in the Bankruptcy Code. The Chapter 7 bankruptcy creditors fall under six classes of claims. The law states that amount outstanding to each class of creditors have to be met in full before the next lower class is paid anything.

Always remember that the unsecured creditors get paid only to the extent of the return attained from the sale of the non-exempt assets.