In addition to representing nearly every possible party-in-interest in Chapter 11 reorganization bankruptcies, our law office, located in Denver, likewise represents business and individual debtors; secured, undersecured, and unsecured creditors; administrative expense claimants; and trustees in Chapter 7 liquidation bankruptcy cases.
Chapter 7 of Title 11 of the U.S. Code (the Bankruptcy Code) is used for businesses and individuals when they do not desire to attempt to reorganize their debts, or cannot. Rather, in each case, a Chapter 7 trustee is appointed to gather the debtor’s assets (if any) and liquidate them for the benefit of the debtor’s creditors. In a business case, all assets are available for liquidation, while in an individual case, only non-exempt assets are subject to being liquidated.
A Chapter 7 case commences with the debtor or one or more creditors filing a petition for relief. Once filed and an order for relief is entered, a trustee is appointed, usually from a panel of Chapter 7 trustees. The debtor will file schedules setting forth assets, liabilities, creditor information, and other related information. In addition, the debtor files a statement of financial affairs.
At a very generalized, high level, the business debtor’s usual goal in a Chapter 7 case is to provide for an orderly wind-down of its business. In an individual’s Chapter 7 case, the goal is typically to obtain a “discharge,” which generally means that the debtor is discharged from all debts and liabilities on claims that arose before the bankruptcy.
Creditors are allowed to participate in the Chapter 7 process. Examples include:
In addition, with regard to individual Chapter 7 cases, under certain circumstances, interested parties may object to the discharge of a particular pre-bankruptcy debt or all of the debtor’s pre-bankruptcy debts.
A business files for Chapter 7 relief for a number of reasons, including debt exceeding assets, costly litigation, an adverse judgment has been entered or is imminent, or the debtor simply desires an orderly wind-down and its principals want to fulfill their fiduciary duties. If there is a filing, the business ceases any operations unless continued by a Chapter 7 trustee, who is immediately appointed, having broad powers to examine the financial affairs of the business in debt. The trustee will endeavor to liquidate the business’s assets, which includes physical assets like inventory and equipment as well as intellectual property, contractual rights, and claims. Proceeds of the liquidation are then distributed pursuant to the order of priority established by the Bankruptcy Code.
A non-individual entity does not receive a bankruptcy discharge in a Chapter 7 case, but is instead dissolved.
In a Chapter 7 individual bankruptcy case, people are able to keep certain exempt assets, but they are also required to surrender all non-exempt assets. Most individual debtors hope that this legal bargain results in them obtaining a discharge of most, if not all, of their pre-bankruptcy debts.
While not often as complex as other chapters of the Bankruptcy Code, Chapter 7 bankruptcy cases may appear deceptively simple. Yet, the Chapter 7 process can be complicated, nuanced, and necessarily requires attorneys who have substantial Chapter 7 experience, knowledge, and abilities in order for clients to be meaningfully and adequately represented.
Practicing law with the highest degree of integrity, courtesy, competence and honesty, Kevin Neiman has represented nearly every possible Chapter 7 interested party, including creditors, business and individual debtors, and trustees, during his nearly 20 years of practice.
A debtor is the business or person that is the subject of a bankruptcy petition, usually filed voluntarily by the debtor, but sometimes filed involuntarily by a creditor or several creditors
A secured creditor has a pre-bankruptcy claim against the debtor that is secured by a charge against or interest in property to secure payment of a debt or performance of an obligation – i.e., the creditor is secured by a lien.
An undersecured creditor has a pre-bankruptcy claim against the debtor that is secured by a charge against or interest in property to secure payment of a debt or performance of an obligation – i.e., the creditor is secured by a lien. However, the value of the property secured by the lien is not enough to fully satisfy the amount owed to the creditor. Thus, the creditor is partially secured and partially unsecured.
An unsecured creditor has a pre-bankruptcy claim against the debtor, but the creditor does not have any lien to secure payment of a debt or performance of an obligation. In bankruptcy, creditors can be unsecured, but also entitled to priority up to certain amounts over other unsecured creditors if their claim is of a particular type such as domestic support obligations; wages, salaries, and commissions; contributions to employee benefit plans; and specific types of money deposits. If a creditor is not entitled to any such priority, the creditor is sometimes called a general unsecured creditor.
An administrative expense claimant has a post-bankruptcy claim that, generally, helps preserve the debtor’s bankruptcy estate. Examples include wages, salaries, and commissions for services rendered after the commencement of the bankruptcy case; and post-bankruptcy taxes.
A Chapter 7 trustee is appointed in each Chapter 7 case to perform a number of functions, including investigating the financial affairs of the debtor; collecting and reducing to money the property of the bankruptcy estate; and distributing any money that the trustee is holding.
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Chapter 7 of the Bankruptcy Code (Title 11 of the United States Code) generally concerns the liquidation of available assets by a chapter 7 trustee for distribution to creditors. In an individual case, the debtor’s assets, if any, are divided into two groups – exempt and non-exempt. Exempt assets are exempt under applicable bankruptcy and state laws and are unavailable for the trustee to liquidate, whereas non-exempt assets are subject to liquidation by the trustee. Certain entities can also file Chapter 7 bankruptcies, such as corporations and limited liability companies. In such a situation, the entity usually ceases operations, and a trustee assumes all control over any business assets and proceeds to liquidate them if they have any value. There are no asset exemptions for non-individual bankruptcies.
Individuals often file Chapter 7 bankruptcies to discharge certain of their pre-bankruptcy debts.
Businesses frequently file Chapter 7 bankruptcies to orderly wind down their operations.
Generally, Section 362 of the Bankruptcy Code invokes an “automatic stay” of specific creditor activity upon the filing of a bankruptcy petition. This, for example, causes pending litigation in which the debtor is a defendant to be stopped as well as any collection activity. There are exceptions to the application of the automatic stay. In addition, creditors may seek relief from stay under certain circumstances, and the stay will continue only for so long depending on the specific case status (such as it ceases to exist if the case is closed or dismissed).
Chapter 7 individual bankruptcies involve the appointment of a Chapter 7 trustee to liquidate non-exempt assets for the benefit of creditors with the bankruptcy court often entering a discharge order often four to six months after the filing. Chapter 13 individual bankruptcies require confirmation of a plan of reorganization for debtors to pay their creditors certain amounts of money over several years, with the debtors generally getting to keep, at least initially, their assets. The discharge usually does not enter until all such plan payments are made. In addition, Chapter 13 cases have debt limits that if exceeded preclude proceeding under this chapter (under such a situation Chapter 7 liquidation or Chapter 11 reorganization may be potential alternatives).
All bankruptcy filings require at the outset, at a minimum, a petition for relief and a listing of creditor information. Other documents are also required to be filed, like schedules and a statement of financial affairs, some of which can wait until a few weeks after the commencement of the case. Great care needs to be taken in preparing all documents filed with the bankruptcy court, ensuring that they are as accurate as possible and timely filed.
Yes. Individuals are generally required to take a credit counseling class within 180 days before the filing and include a certificate evidencing completion of the class with the petition. Similarly, individuals are required to take a personal financial management course after the filing within a period of time and file a certificate proving that the person finished the class. Providers of these classes can be found at https://www.justice.gov/ust/eo/bapcpa/ccde/CC_Files/CC_Approved_Agencies_HTML/cc_colorado/cc_colorado.htm. Depending on the provider; the courses can be taken over the phone or via the internet.
A meeting of creditors, or Section 341 meeting, is a statutory and mandatory meeting convened in a Chapter 7 case by the trustee approximately 30 days after the filing of the petition. The trustee swears in the debtor (in an individual case) or the debtor’s representative in a non-individual case, and the trustee asks the person questions to be answered under oath concerning the bankruptcy. Creditors of the debtor also have an opportunity to ask the person questions.
Yes. A court filing fee is usually paid at the commencement of the Chapter 7 case. See http://www.cob.uscourts.gov/fees.
Generally, my firm charges a flat fee for most expected services in a Chapter 7 bankruptcy case, which varies by type of debtor (individual vs. non-debtor), amount and type of debt at issue, anticipated issues, and sophistication of case. Certain services outside the ordinary course of a typical Chapter 7 case, however, will be charged at hourly rates, such as those related to adversary proceedings where creditors object to the discharge of debts. In addition, if the matter requires meaningful pre-bankruptcy counseling, my firm may charge hourly for those services. Whatever the legal arrangement, it will be documented at the outset of the matter in an engagement letter to avoid any miscommunication.
The Law Offices of Kevin S. Neiman, pc represents all types of participants in Chapter 7 cases, including individual and non-individual (like companies) debtors, secured and unsecured creditors, trustees, and purchasers of assets.
The “means test” is a statutory test created to, among other things, ensure that the Chapter 7 process is not abused in individual bankruptcy cases whereby people who have the ability to pay off at worst some of their debt are pushed toward one of the reorganization chapters (Chapters 11 and 13).
Financial distress is frequently why chapter 7 liquidations are considered. Also, while there are other reasons, expensive or risky litigation often leads to this potential alternative.
In individual bankruptcy cases, assets are divided into two pools: exempt and non-exempt. Those that are exempt are unavailable to the claims of creditors or the trustee under applicable state or federal law, while non-exempt are subject to such claims. Businesses in bankruptcy cases do not have any exemptions for their assets.
While individuals can represent themselves throughout their chapter 7 bankruptcies, the process can be complex and failing to appreciate all rights, duties, and obligations under the Bankruptcy Code and related law could have serious adverse consequences. With knowledge and experience, able counsel usually provides meaningful benefits by assisting people navigate through the bankruptcy process.