If you are contemplating filing for bankruptcy, there are certain elements of chapter 7 that you should know about. Understanding these terms becomes helpful if you choose to file for bankruptcy.
The bankruptcy trustee and their role
After a Chapter 7 bankruptcy petition is filed, the bankruptcy court appoints an impartial case trustee to administer the case. Their role is to examine your assets and help in the liquidation of your non-exempt property. Your property is liquidated if it is free, does not have any liens attached to it, and is worth more than the security interest in the property. The money generated after the liquidation of non-exempt property is distributed among unsecured creditors. If all your property is exempted, the trustee files a no-asset report. As a result, your case is discharged after the stipulated time. Usually, most Chapter 7 cases are no-asset cases.
Apart from these, other duties of the bankruptcy trustee involve checking and altering any preferential transfers made to creditors within 90 days before bankruptcy petition filing. They also pursue non-bankruptcy claims, including fraudulent conveyance and property transfers, before the bankruptcy filing. Chapter 7 bankruptcy is being filed by a business; the trustee might be asked to operate the business for some time if it would be beneficial for the creditors to add to improve the estate’s liquidation.
If there are assets involved in the case, the unsecured creditors are required to file claims in the court to receive their dues within 90 days of the date set for the creditors’ meeting. If the unsecured creditor is a government unit, they are provided 180 days to file the claim. If the Chapter 7 case is a no-asset case, the creditors require no such proof of claim as there is no money to distribute. However, suppose any assets are recovered later by the bankruptcy trustee. In that case, the court notifies the creditors and allows additional time for filing the proof of claim. Usually, secured creditors do not require to file this claim.
What is the bankruptcy estate?
When a bankruptcy case starts, a bankruptcy estate is created for temporary legal ownership of the debtors’ property. It includes all equitable interests in the property, including any property owned by the debtor or held by another person, but with the debtor’s interest in it. Any non-exempt property of this bankruptcy estate is liquidated to pay the debtor’s unsecured creditors.
How is estate property distributed?
As per the Bankruptcy Code, the bankruptcy estate property is distributed to 6 classes of claims in a specific order. Each class must be paid in full before the class below it is paid anything. If anything remains after paying off all the classes of creditors, then the debtor is paid any amount. Usually, in a Chapter 7 bankruptcy case, the filer aims to retain their exempt property and get a discharge of as many debts as possible.
Dealing with bankruptcy can be extremely difficult and stressful. However, having an experienced bankruptcy lawyer by your side can help you navigate through this tough situation. You can call 888-297-6203 to discuss your options while filing for bankruptcy with bankruptcy lawyers in Los Angeles.