Bankruptcy Code Chapter 7 Flashcards

Bankruptcy Code Overview

• The Bankruptcy Code comprises several chapters: Chapter 7 for liquidation, Chapter 11 for reorganizations, and Chapter 13 for individual debt adjustments with regular income.

Chapter 7 Bankruptcy

• Initiated by filing a Chapter 7 petition; overseen by a court-appointed trustee.
• Trustee manages assets, separating exempt from non-exempt assets; non-exempt assets are sold to repay creditors.
• Remaining debt may be discharged by the court, barring specific exceptions.

Filing Requirements

• Upon filing, debtors must submit schedules detailing both secured and unsecured creditors, financial affairs, owned assets (including exempt property), and a statement of current income and expenses.
• Gained proof of creditors and payment received within 60 days prior to bankruptcy filing is required.
• A signed statement of monthly income and a federal income tax return from the prior year must be provided.

Means Test and Abuse

• If a debtor's median income exceeds their state’s median, it suggests potential abuse and may lead to dismissal or conversion to Chapter 13.

Court Dismissal Scenarios

• Courts can dismiss Chapter 7 filings if the debtor has been convicted of a violent or drug-related crime, or if they fail to meet domestic support obligations post-filing.

Legal Concepts in Bankruptcy

• "Order for relief" refers to the court's approval of a proper bankruptcy petition.
• The "automatic stay" immediately prohibits creditors from collecting debts upon filing.
• An "involuntary petition" is a legal mechanism to initiate bankruptcy proceedings against a non-consenting debtor.

Bankruptcy Estate

• The bankruptcy estate excludes property sold by the debtor three years before filing.
• "Strong-arm" power allows trustees to reclaim debtor property held by others.
• "Power of avoidance" enables trustees to nullify certain property transfers to include them in the bankruptcy estate.

Preferences in Bankruptcy

• Defined as a property transfer to a creditor that favors that creditor over others in the bankruptcy scenario.

Exempt Property

• Certain assets can be exempt from bankruptcy, including:
  • Homestead exemption for residence and burial plots.
  • Specific dollar amounts for vehicles and household goods.
  • Tools of trade and health aids, such as wheelchairs or glasses.

Distribution of Assets

• Property distribution follows a hierarchy, prioritizing secured creditors first, then proportionately to unsecured creditors.

Discharge Denial Conditions

• Creditors may contest discharge if:
  • Debtor engages in deceptive conduct, such as hiding or destroying property.
  • Financial records are concealed or required education courses aren't completed.
  • Debtor is involved in felony proceedings or previously discharged debts within eight years.