Chapter 7

Liquidation

Also referred to as straight bankruptcy

How a case is begun
File a petition. Can be voluntary or involuntary

Voluntary petition
Can be filed by “all debtors” which include: Exclusions: Banks, credit unions, savings and loan associations, insurance companies, homestead associations, licensed small business investment companies, and railroads
 * 1) An individual
 * 2) A partnership
 * 3) A corporation

Involuntary petition
Filed by creditors of the debtor, creditor must have $15,325 worth of unsecured claims

If debtor has 12+ creditors:

 * 3 creditors are needed to put debtor into involuntary bankruptcy

Debtor has <12 creditors
Exclusions: Farmer or banking, insurance or non-profit corporation
 * A single creditor can put debtor into involuntary bankruptcy

Abuse
A court may dismiss a Chapter 7 case or convert it to an 11 or 13 if abuse is found. Abuse may be found in one of two ways
 * 1) On general grounds of abuse, including bad faith, determined under the totality of the circumstances; or
 * 2) Through an unrebutted finding of abuse based on the means test

Qualifying for Chapter 7
Measure current monthly income (calculated as the average over last six months before you file) against the median income for a family of your size in the state (www.usdoj.gov/ust)

Income ≤ Median

 * Debtor can file for Chapter 7, i.e. “abuse is not presumed.”

Income > Median

 * Debtor must pass the “Means Test”

Mandatory Credit Counseling
Where debtor qualifies to file for Chapter 7, Debtor must also have Approved Credit Counseling (approved by Department of Justice) within six months prior to filing, and debtor must pay for it

Discuss quandry re: debtors who have not received required briefing in a Chapter 7 involuntary proceeding. Collusion w/creditors so as not to have to undergo counseling?