Chapter 7 is the most common form of bankruptcy and is also called liquidation bankruptcy. Chapter 7 cases can be filed by an individual, a married couple, or a business entity (corporation or partnership). In a Chapter 7 case a court-appointed Trustee collects the Debtor’s non-exempt assets and reduces them to cash in order to pay the Debtor’s creditors. Note the emphasis on “non-exempt”. Non-exempt assets are those which the Debtor is permitted to retain in bankruptcy and keep them out of the reach of creditors and the Trustee. In some cases the debtor has no assets other than non-exempt assets so there is nothing for the Trustee to liquidate in order to pay creditors.
Inappropriate cases, the Chapter 7 Trustee may also investigate the Debtor’s financial affairs and seek to set aside certain transfers of money or property made by the Debtor prior to the case filing. Creditors may find themselves involved in demand from the Trustee or even a formal lawsuit filed in the bankruptcy court by the Trustee seeking to undo these transfers and recover the property or the value of the property from the Creditor. A Creditor who does nothing after being served with a Trustee’s lawsuit of this sort may find themselves subject to a money judgment and collection efforts by the Trustee. Needless to say, if you receive a demand from the Trustee or are served with a lawsuit you should contact our bankruptcy attorneys to review the same and recommend the best course of action available to you as a creditor in the bankruptcy case.
Once funds are brought into the case, Creditors will be notified to file claims by a bar date in order to seek to participate in payment. The bar date is a strict deadline for Creditors to assert their claims against the Debtor and provide proof of the existence of the debt and their right to payment. Creditors will also often need legal assistance in regards to preparing these proofs of claim as the form is comprehensive and may require detailed attachments depending on the type of claim you have against the Debtor. Many times Creditors leave “money on the table” by not filing a claim in a bankruptcy case (or by filing a claim after the deadline) since they are unsure of the process and are unsure how to complete the claim form. A bankruptcy Proof of Claim is an important document that needs to be properly handled. Our bankruptcy attorneys have extensive experience in preparing and filing proofs of claim for secured and unsecured creditors in bankruptcy cases.
A Creditor might hold a claim resulting from fraud, misrepresentation, or other types of dishonest acts by the Debtor. The Bankruptcy Code provides that certain types of these claims will not be discharged (eliminated) in the Debtor’s bankruptcy case. However, if it up to the Creditor to assert the non-dischargeable nature of the claim in the case and obtain a determination from the bankruptcy court that the debt is one of these types. If the Creditor fails to seek such a determination in these cases then the debt will be discharged regardless of the nature and severity of the fraud! If you believe that fraud, misrepresentation or some type of dishonesty is involved on the part of the Debtor in regards to the debt owed to you then you should contact our bankruptcy attorneys to review the same and discuss the best course of action available to you.
As with the filing of a bankruptcy case under any Chapter, an automatic stay of nearly all collection efforts arises when a Chapter 7 bankruptcy case is filed so in nearly all instances Court permission is necessary for a Creditor to pursue its lien against the Debtor’s property outside of the bankruptcy process. Contact our bankruptcy attorneys to schedule a consultation to review your case and discuss the best course of action available to you.