Chapter 7 us bankruptcy code

chapter 7 us bankruptcy code

(2) The United States trustee (or bankruptcy administrator, if any) shall, not later than 30 days after the date of filing a statement under paragraph (1), either file a motion to dismiss or convert under section (b) or file a statement setting forth the reasons the United States trustee (or the bankruptcy administrator, if any) does not consider such a motion to be appropriate, if the. Chapter 7 - Liquidation (Sections to ) - U.S. Bankruptcy Code Chapter 7 – Liquidation (Sections to ) Subchapter I – Officers and administration (Sections to ) Subchapter II – Collection, liquidation, and distribution of the estate (Sections to ). However, section (a)(9) of the House amendment contains a compromise based on section (a)(8) of the Senate amendment with respect to the circumstances under which a plan by way of composition under Chapter XIII of the Bankruptcy Act [chapter 13 of former title 11] should be a bar to discharge in a subsequent proceeding under title chapter 7 us bankruptcy code

Involuntary cases are not permitted for municipalities, because to do so may constitute an invasion of State sovereignty contrary to the 10th amendment, and would constitute bad policy, by permitting the fate of a municipality, governed by officials elected by the people of the municipality, to be determined by a small number of creditors of the municipality.

Involuntary chapter 13 cases are not permitted either. To do so would constitute bad policy, because chapter 13 only works when there is a willing debtor that wants to repay his creditors. Short of involuntary servitude, it is difficult to keep a debtor working for his creditors when he does not want to pay them back.

See chapter 3, supra. The exceptions contained in current law that prohibit involuntary cases against farmers, ranchers and eleemosynary institutions are continued. Farmers and ranchers are excepted because of the cyclical nature of their business. One drought year or one year of low prices, as a result of which a farmer is temporarily unable to pay his creditors, should not subject him to involuntary bankruptcy. Eleemosynary institutions, such as churches, schools, and charitable organizations and foundations, likewise are exempt from involuntary bankruptcy.

The provisions for involuntary chapter 11 cases is a slight change from present law, based on the proposed consolidation of the reorganization chapters. Currently, involuntary cases are permitted under chapters X and XII [chapters 10 and 12 of former title 11] but not under chapter XI [chapter 11 of former title 11]. The consolidation requires a single rule for all kinds of reorganization proceedings.

Because the assets of an insolvent debtor belong equitably to his creditors, the bill permits involuntary cases in order that creditors may realize on their assets through reorganization as well as through liquidation. Subsection b of the section specifies who may file an involuntary petition.

As under current law, if the debtor has more than 12 creditors, three creditors must join in the involuntary petition. The new amount applies both to liquidation and reorganization cases in order that there not be an artificial difference between the two chapters that would provide an incentive for one or the other.

Subsection b 1 makes explicit the right of an indenture trustee to be one of the three petitioning creditors on behalf of the creditors the trustee represents under the indenture. If all of the general partners in a partnership are in bankruptcy, then the trustee of a single general partner may file an involuntary petition against the partnership.

Finally, a foreign representative may file an involuntary case concerning the debtor in the foreign proceeding, in order to administer assets in this country. This subsection is not intended to overrule Bankruptcy Rule d , which places certain restrictions on the transfer of claims for the purpose of commencing an involuntary case.

That Rule will be continued under section d of this bill. Subsection c permits creditors other than the original petitioning creditors to join in the petition with the same effect as if the joining creditor had been one of the original petitioning creditors.

Subsection d permits the debtor to file an answer to an involuntary petition. The subsection also permits a general partner in a partnership debtor to answer an involuntary petition against the partnership if he did not join in the petition.

Thus, a partnership petition by less than all of the general partners is treated as an involuntary, not a voluntary, petition. The court may, under subsection e , require the petitioners to file a bond to indemnify the debtor for such amounts as the court may later allow under subsection i. Subsection i provides for costs, attorneys fees, and damages in certain circumstances.

The bonding requirement will discourage frivolous petitions as well as spiteful petitions based on a desire to embarrass the debtor who may be a competitor of a petitioning creditor or to put the debtor out of business without good cause. An involuntary petition may put a debtor out of business even if it is without foundation and is later dismissed.

Subsection f is both a clarification and a change from existing law. It permits the debtor to continue to operate any business of the debtor and to dispose of property as if the case had not been commenced. The court may make such an order only on the request of a party in interest, and after notice to the debtor and a hearing.

There must be a showing that a trustee is necessary to preserve the property of the estate or to prevent loss to the estate. The debtor may regain possession by posting a sufficient bond. Subsection h provides the standard for an order for relief on an involuntary petition.

If the petition is not timely controverted the Rules of Bankruptcy Procedure will fix time limits , the court orders relief after a trial, only if the debtor is generally unable to pay its debts as they mature, or if the debtor has failed to pay a major portion of his debts as they become due, or if a custodian was appointed during the day period preceding the filing of the petition.

The first two tests are variations of the equity insolvency test. They represent the most significant departure from present law concerning the grounds for involuntary bankruptcy, which requires an act of bankruptcy. This bill abolishes the concept of acts of bankruptcy. The equity insolvency test has been in equity jurisprudence for hundreds of years, and though it is new in the bankruptcy context except in chapter X [chapter 10 of former title 11] , the bankruptcy courts should have no difficulty in applying it.

The third test, appointment of a custodian within ninety days before the petition, is provided for simplicity. It is not a partial re-enactment of acts of bankruptcy.

If a custodian of all or substantially all of the property of the debtor has been appointed, this paragraph creates an irrebuttable presumption that the debtor is unable to pay its debts as they mature. Ninety days gives creditors ample time in which to seek bankruptcy liquidation after the appointment of a custodian. If they wait beyond the ninety day period, they are not precluded from filing an involuntary petition.

They are simply required to prove equity insolvency rather than the more easily provable custodian test. The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire. Individuals who reside, have a place of business, or own property in the United States may file for bankruptcy in a federal court under Chapter 7 "straight bankruptcy", or liquidation.

In a Chapter 7 bankruptcy, the individual is allowed to keep certain exempt property. Most liens , however such as real estate mortgages and security interests for car loans , survive. The value of property that can be claimed as exempt varies from state to state. Other assets, if any, are sold liquidated by the trustee to repay creditors. Many types of unsecured debt are legally discharged by the bankruptcy proceeding, but there are various types of debt that are not discharged in a Chapter 7.

Spousal support is likewise not covered by a bankruptcy filing, nor are property settlements through divorce. Despite their potential non-dischargeability, all debts must be listed on bankruptcy schedules. A Chapter 7 bankruptcy stays on an individual's credit report for 10 years from the date of filing the Chapter 7 petition.

This contrasts with a Chapter 13 bankruptcy, which stays on an individual's credit report for 7 years from the date of filing the Chapter 13 petition. This may make credit less available or may make lending terms less favorable, although high debt can have the same effect. That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness. Consumer credit and creditworthiness is a complex subject, however.

Future ability to obtain credit is dependent on multiple factors and difficult to predict. Another aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his or her Chapter 7 filing as abusive. One factor in considering whether the U. Trustee can prevail in a challenge to the debtor's Chapter 7 filing is whether the debtor can otherwise afford to repay some or all of his debts out of disposable income in the five year time frame provided by Chapter If so, then the U.

Trustee may succeed in preventing the debtor from receiving a discharge under Chapter 7, effectively forcing the debtor into Chapter Some bankruptcy practitioners [ who? Trustee has become more aggressive in recent times in pursuing what the U. Trustee believes to be abusive Chapter 7 filings. Through these activities the U. Trustee has achieved a regulatory system that Congress and most creditor-friendly commentors have consistently espoused, i.

Bankruptcy Code that include, along with many other reforms, language imposing a means test for Chapter 7 cases. Creditworthiness and the likelihood of receiving a Chapter 7 discharge are some of the issues to be considered in determining whether to file bankruptcy.

The importance of the effects of bankruptcy on creditworthiness is sometimes overemphasized [ by whom? Also, new credit extended post-petition is not covered by the discharge, so creditors may offer new credit to the newly-bankrupt. Functionally, templates are more or less the computer based equivalent of paper bankruptcy forms.

The official Federal bankruptcy forms prescribed in the Federal Bankruptcy Rules come as Microsoft Word and Adobe Acrobat formatted templates where each bankruptcy form is represented by a Word or Acrobat file. While these forms are electronic in nature and reside on a computer, they do not contain intelligence that would guide the debtor.

The debtor still has to fill in each bankruptcy form separately as they would with paper forms and the debtor still has to grapple with the complexity of bankruptcy law. In bankruptcy software, the debtor interacts with the software through a web page and is shielded from the actual bankruptcy forms and from the intricacies of bankruptcy law. The debtor responds to questions in an interview setting, much like with tax programs such as TurboTax or automated documents made through HotDocs.

The debtor enters names and addresses, a list of their creditors and assets and other financial information and the software generates all the court-ready forms and delivers them to the debtor via email or a download link.

The accuracy of the forms is nevertheless imperfect, as it is difficult for software to ensure that the debtor understands what has to be disclosed, what the exemptions for their state are, whether they qualify for said exemptions, and whether expenses included on the means test are allowable.

An alternative to do-it-yourself is the bankruptcy petition preparer. This method appeals to those who cannot afford the higher cost of bankruptcy attorneys and at the same time do not want the hassle and uncertainty of self-prepared document templates and software. Bankruptcy petition preparers fill this need. The bankruptcy forms are prepared by trained individuals rather than by debtor themselves. However, having a preparer or paralegal prepare the petition does not guarantee compliance with all applicable laws, or assure that maximum advantage will be taken of exemptions.

As with online bankruptcy software, debtors in some cases submit their bankruptcy information through a simple web page interface. Rather than having some software automatically generate the forms, trained paralegals use the information to prepare the document and then deliver them to the debtor. Bankruptcy trustees will check the bankruptcy petition to ensure that the petition was prepared properly, much like the trustee would do if a lawyer had prepared the forms.

A bankruptcy attorney can advise the consumer on when the best time to file is, whether they qualify for a chapter 7 or need to file a chapter 13, ensure that all requirements are fulfilled so that the bankruptcy will go smoothly, and whether the debtor's assets will be safe if they file. With expanded requirements of the BAPCPA bankruptcy act of , filing a personal chapter 7 bankruptcy is complicated.

Many attorneys that used to practice bankruptcy in addition to their other fields, have stopped doing so due to the additional requirements, liability and work involved. After the petition is filed, the attorney can provide other services. This legislation was the biggest reform to the bankruptcy laws since The legislation was enacted after years of lobbying efforts by banks and lending institutions and was intended to prevent abuses of the bankruptcy laws.

This test is referred to as the " means test ".

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