Fundamental Concept of Chapter 7: The Bankruptcy Process
This is part 1 of a 10 part series on Chapter 7 bankruptcy and will provide general information regarding bankruptcy under Chapter 7. It is intended to provide you with enough detail to give you a good basic understanding of the process, without snowing you under with too much information. Obviously, there are exceptions and nuances to just about everything described in this outline. The Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and reported case law are the primary sources of information. All section references here are to the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. All Rule references are to the Federal Rules of Bankruptcy Procedure.
Chapter 7 is a liquidating bankruptcy: A debtor cannot pay debts, and seeks a fresh start. The goal is to wipe out, or “discharge,” most if not all debt, and keep most if not all property. Actual results depend on the type of debts and type and value of property held by the debtor.
Fundamentally, Chapter 7 represents a forced imposition of a settlement of debt by debtors on their creditors. The debtor offers up all assets that cannot otherwise be protected as exempt and that are not completely encumbered by security interests (more on each of these below), in return for relief from debt and a chance at a fresh start.
Chapter 7 is available to individuals and to married couples, who would file a joint petition. It is also available to entities—that is, corporations, LLCs, partnerships, and unincorporated organizations such as nonprofits. Entity filings do not include the “fresh start.” An entity filing a Chapter 7 bankruptcy ceases to exist, gets no discharge, is not entitled to protect any property as exempt, and experiences the liquidation of all of its property.
In each Chapter 7 case, a trustee is appointed, whose job it is to review the debtor’s petition and schedules and, if appropriate, liquidate any non-exempt assets. If there are no non-exempt assets, the trustee issues a “no-asset” report, and takes no further action.
Contact the bankruptcy attorneys at Wenokur Riordan PLLC today at (206) 724-0846 to discuss your situation.
Author: Alan Wenokur has been a Seattle bankruptcy attorney since 1988. He opened his solo practice in 1991, and formed the Wenokur Riordan law firm in 2017.
Alan regularly assists both individuals and businesses in bankruptcy cases and out-of-court workouts. His practice emphasizes representation of debtors in Chapter 7 and Chapter 13 bankruptcy cases, creditors in all bankruptcy proceedings, and bankruptcy litigation in all chapters. His debtor practice typically involves individuals with struggling businesses and complex financial affairs.
Alan’s work includes representing a number of Chapter 7 panel trustees in cases involving recovery of assets. These matters often feature undisclosed assets, fraudulent behavior, litigation, and/or recovery of speculative assets. He enjoys matters involving complex fact patterns, unsettled legal issues, and litigation in the Bankruptcy Courts.
Alan is a graduate of the University of Michigan Law School. He is a member of the Washington State Bar creditor/debtor section and the US Bankruptcy Court local rules committee. He is rated as AV-preeminent by Martindale Hubbell. Since 2012 he has been selected annually by his peers as a bankruptcy “SuperLawyer.” He speaks regularly at professional seminars, often on the role and responsibilities of debtor’s counsel in Chapter 7 cases. Alan has also volunteered his services with the King County Bar Association’s Debt Clinic for over 20 years.