Chapter 7 Bankruptcy

Sportslaw Jargon: Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a liquidation proceeding in which the debtors nonexempt assets, if any, are sold by a trustee and the proceeds distributed to creditors according to the priority. Chapter 7 is considered the simplest form of bankruptcy and is available to individuals, married couples, corporations and partnerships. But it can be also filed by corporations as well and has been used by at least one sports league [click here]

Filing a Chapter 7 bankruptcy involves the filing an official petition, schedule, and statement of financial affairs. These forms list assets, debts and some financial history of the debtor. Debtors must also list all creditors along with all real and personal property owned.

After filing, an automatic stay (the injunction made by the court which prohibits collection from the debtors assets, estate or property) goes into effect immediately and the court appoints a trustee to give notice to all creditors listed from the schedules that you have filed for bankruptcy. The debtor also receives a copy of the notices sent to creditors.

Next is the so-called §341 meeting (also called the first meeting of the creditors) where the trustee and creditors can ask the debtor about assets and liabilities. After the meeting, if assets are found to be nonexempt, the trustee takes control of those assets. The money made by the sale goes to administration of the case. What ever is left over gets distributed among creditors who have first priority.

Creditors and the trustee have a 60 day period from the 341 meeting to challenge the debtors right to a discharge. Unless any action to deny the debtor to discharge is taken, the court usually issues a discharge after the 60-day period expires. The discharge means the legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien which secures the debt may survive the bankruptcy case.

It is important to note that after the discharge, certain debts survive a Chapter 7 bankruptcy because they are "exempted" from discharge by law: Taxes, student loans (in most cases), and liens are among some of the debts not discharged by Chapter 7. Any debts that were reaffirmed will also survive the bankruptcy.

(Thanks to The Moran Group www.moranlaw.net for the information provided in the text).

J. Martinez