Chapter 7 Liquidation:

I. Pre-Petition

A. Who may be a Debtor: 109(a)(b): No Railroads, Insurances Companies, or Banks

B. Credit Counseling Requirement: 111

C. Chapter 7 Threshold: 707

1. Anti Abuse Provision: The court may dismiss a chapter 7 case filed by an
individual whose debts are primarily consumer rather than business debts if the court
finds that the granting of relief would be an abuse of chapter 7. 11 U.S.C. § 707(b).
a. Application of the Means Test: If the debtor's "current monthly income" (1) is
more than the state median, the Bankruptcy Code requires application of a "means
test" to determine whether the chapter 7 filing is presumptively abusive.
i. Current Monthly Income:
ii. Means Test: Abuse is presumed if the debtor's aggregate current monthly
income over 5 years, net of certain statutorily allowed expenses, is more than
(i) $11,725, or
(ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is
at least $7,025.
b. Rebuttable Presumption: The debtor may rebut a presumption of abuse only
by a showing of special circumstances that justify additional expenses or
adjustments of current monthly income. Unless the debtor overcomes the
presumption of abuse, the case will generally be converted to chapter 13 (with the
debtor's consent) or will be dismissed. 11 U.S.C. § 707(b)(1).

D. Time between Filing:

1. Previous Chapter 7 or 11: The court will deny a discharge in a later chapter 7 case
if the debtor received a discharge under chapter 7 or chapter 11 in a case filed within
eight years before the second petition is filed.
2. Previous Chapter 12 or 13: The court will also deny a chapter 7 discharge if the
debtor previously received a discharge in a chapter 12 or chapter 13 case filed within
six years before the date of the filing of the second case unless (1) the debtor paid all
"allowed unsecured" claims in the earlier case in full, or (2) the debtor made
payments under the plan in the earlier case totaling at least 70 percent of the allowed
unsecured claims and the debtor's plan was proposed in good faith and the payments
represented the debtor's best effort.
3. Dismissal of Previous Petition: An individual cannot file under chapter 7 or any
other chapter, however, if during the preceding 180 days a prior bankruptcy petition
was dismissed due to the debtor's willful failure to appear before the court or comply
with orders of the court, or the debtor voluntarily dismissed the previous case after
creditors sought relief from the bankruptcy court to recover property upon which they
hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e).
II. The Filing: The bankruptcy clerk gives notice of the bankruptcy case to all creditors
whose names and addresses are provided by the debtor.

A. Types of Petitions
1. Voluntary Petition: 301
2. Involuntary Petition: 303
(a) Can be filed against legal person (this includes corporations—any person who
themselves is eligible to file 7 or 11), except a farmer, family farmer, or
corporation that is not money, business, profit or commercial corporation.
(b) Who can file:
i. Petitioner must be owed $12,300, unsecured, non-contingent, and
undisputed
ii. If more than three, aggregate amount is used
iii. If there are more than 12 creditors, aggregate amount is used, but at least 3
creditors must join.
(c) § 303(h)—Acts of Bankruptcy
i. Debtor is generally not paying debts as debts come due, OR
ii. Within 120 days a custodian other than trustee, receiver or agent is
appointed or took position.

B. The Automatic Stay: Filing a petition under chapter 7 "automatically stays" (stops)
most collection actions against the debtor or the debtor's property. The stay arises by
operation of law and requires no judicial action. 362.
1. What is Stopped: As long as the stay is in effect, creditors generally may not
initiate or continue lawsuits, wage garnishments, or even telephone calls demanding
payments.
2. What is not Stopped: But filing the petition does not stay certain types of actions
listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in
some situations.
3. Exceptions to Automatic Stay: See Outline

C. Information from the Debtor 521-522; 501(c); 722

1. All debtors must also file with the court:
a. schedules of assets and liabilities;
b. a schedule of current income and expenditures;
c. a statement of financial affairs; and
d. a schedule of executory contracts and unexpired leases.
e. a copy of the tax return or transcripts for the most recent tax year as well as
tax returns filed during the case (including tax returns for prior years that had not
been filed when the case began). 521.
2. Individual debtors with primarily consumer debts must also file:
a. a certificate of credit counseling and a copy of any debt repayment plan
developed through credit counseling;
b. evidence of payment from employers, if any, received 60 days before filing;
c. a statement of monthly net income and any anticipated increase in income or
expenses after filing; and
 d. a record of any interest the debtor has in federal or state qualified education or
tuition accounts. 521
3. Additionally, Debtor must provide:
a. A list of all creditors and the amount and nature of their claims;
b. The source, amount, and frequency of the debtor's income;
c. A list of all of the debtor's property; and
d. A detailed list of the debtor's monthly living expenses, i.e., food, clothing,
shelter, utilities, taxes, transportation, medicine, etc.
e. a schedule of "exempt" property. 11 U.S.C. § 522(b).

III. Creation of the Estate

A. Administration:
1. The Trustee: 323; 361-365; 701-704; 721
a. Appointment or Election: When a chapter 7 petition is filed, the U.S. trustee
(or the bankruptcy court in Alabama and North Carolina) appoints an impartial
case trustee to administer the case and liquidate the debtor's nonexempt assets. 11
U.S.C. §§ 701, 704.

b. Duties and Powers:

i. Representative of the Estate:
ii. Distributor of Assets: The primary role of a chapter 7 trustee in an asset
case is to liquidate the debtor's nonexempt assets in a manner that maximizes
the return to the debtor's unsecured creditors.
(i) Collect Property:
(ii) Sell Property: The trustee accomplishes this by selling the debtor's
property if it is free and clear of liens (as long as the property is not
exempt) or if it is worth more than any security interest or lien attached to
the property and any exemption that the debtor holds in the property.
(iii) Distribute Proceeds
iii. Caretaker: In addition, if the debtor is a business, the bankruptcy court
may authorize the trustee to operate the business for a limited period of time,
if such operation will benefit creditors and enhance the liquidation of the
estate. 11 U.S.C. § 721.

2. Creditors' Meeting: 341-43; 705

This meeting is informally called a "341 meeting" because section 341 of the
Bankruptcy Code requires that the debtor attend this meeting so that creditors can
question the debtor about debts and property.

3. The Claims: 501-505; 511

See Separate Outline

B. The Estate:
1. Extent of Estate Property:
a. All legal and equitable property interests. 541(a)
 i. tangible real and personal property
ii. intangible property
iii. contingent property interests (ability to file a law suit
iv. Property in the hands of 3rd Parties. 542.
2. Excluded from the Estate: 541(b)(d)
a. Property acquired after the commencement of bankruptcy (wages, earnings,
commissions, etc…)
b. Exemptions: established by 522 or State Law if "Opted out": See Separate
Outline.
c. Property Abandoned by the Estate: Trustee may give back property that is of
no value or benefit to the estate. Like pets. 544(c)
3. Disputed areas:
a. Legal interests that are not enforceable at the date of bankruptcy but may be
enforceable at a future time.
i. Question: Whether they are sufficiently matured and certain to be included in the estate?
ii. Sharp v. Dery - Employee Bonuses - BT argues the debtor had a legal interest in the
bonus; debtor argues that he didn’t have a legal interest in the bonus. Look past the label on
the property right. Examine the terms to determine whether the debtor had a legal interest/
right in the bonus as of the date of filing.
iii. Test: Could the debtor have filed a lawsuit over the bonus on December 21? Look past the
label on the property right. If the court is under no obligation to pay the bonus and/or the
bonus is contingent, it is likely that the court will hold that the bonus is not part of the estate.
b. Certain entitlements, such as permits or licenses that are nontransferable,
which may or may not be property. Ex - Liquor Licenses, etc.
i. Most courts will hold that liquor licenses are property of the estate because when a person
buys a bar, the only thing of “real value” is the liquor license. Thus, if you own a bar and file
for bankruptcy, the liquor license is property of the estate and the trustee can market the bar
with the liquor license.
Examples of other licenses held to be property of the estate: brother license (In re Burgess),
FCC license, airport landing slots, sales tax licenses, trucking certificates, taxi cab medallions.
c. Restrictions on transferability imposed by contract or law
i. §541(c) - A non-alienable provision is a provision in a K which says the debtor will not
transfer property under any circumstances. Most of these types of laws that restrict the
owner’s ability to transfer property ARE NOT enforceable in bankruptcy because the debtor’s
property is transferred to the trustee.
ii. §541(c)(2) - Retirement Accounts - Exceptions to unenforceability restrictions on
transferability for retirement accounts.
iii. “Spendthrift” Trust Provision - This provision enables debtors to keep their retirement
accounts out of bankruptcy estates. Basically says that when you put your money into a trust
which protects you from getting a lot of money and spending it (i.e. spendthrift trust), if
debtor files bankruptcy, the money does not become part of the estate.
iv. ERISA - ERISA qualified plans are beyond the reach of creditors and outside the reach of
the bankruptcy estate.
v. In 2005 Amendments, Congress (as upheld by SC in Rousey v. Jackoway) said most types
of IRA’s are exempt from property of the estate.

2. Avoidance of Transactions: 544-51: See Separate Outline

IV. Distribution 506-10; 724-726; 347

 A. §725 - Disposition of Certain Property - Generally speaking, the trustee is going
to just hand over collateral to secured creditors. The secured creditor essentially
receives the collateral or its value in cash after its distribution.
Secured creditors must be taken care of before distribution to unsecured creditors
occurs.

B. §726 - Distribution of Property - The estate shall be distributed in the following

order, in full until out of assets, then pro rata to the next group:
a. §507 Priority Unsecured Claims
b. Unsecured Claims Timely Filed
c. Unsecured Claims Tardily Filed
d. Fines, Penalties, or Forfeitures
e. Interest on any Claim
f. Debtor

V. Termination
A Dismissal:
1. Grounds for Dismissal: 707
The grounds for denying an individual debtor a discharge in a chapter 7 case are narrow
and are construed against the moving party. Among other reasons, the court may deny the
debtor a discharge if it finds that the debtor: failed to keep or produce adequate books or
financial records; failed to explain satisfactorily any loss of assets; committed a
bankruptcy crime such as perjury; failed to obey a lawful order of the bankruptcy court;
fraudulently transferred, concealed, or destroyed property that would have become
property of the estate; or failed to complete an approved instructional course concerning
financial management. 11 U.S.C. § 727; Fed. R. Bankr. P. 4005.

2. Effect of Dismissal: 349-50

D. Discharge:

1. Grounds for Denying Discharge: 727

a. Denying General Discharge:
i. the debtor is not an individual
Why? Corporations can get a discharge of their debts under CH 11, but not under CH 7
because at the end of a CH 7 there should be no corporation. If someone is claiming they
need a discharge, then they have not fully liquidated.
ii. The debtor, with intent to hinder, delay, or defraud a creditor or officer of the estate
charged with custody of property under this title, has transferred, removed, destroyed,
mutilated, or concealed, or has permitted to be transferred, removed, destroyed,
mutilated, or concealed property of the debtor within 1 year before the date of the filing
of the petition, or property of the estate, after the date of filign of the petition.
Ex - Farmer who sold property to feed his pigs because he couldn’t stand the sound of his
pigs starving was sent to jail for 4/5 months.
iii. Debtor concealed, destroyed, mutilated, falsified, or failed to keep or preserve any
recorded information including books, documents, records, and papers from which the
debtor’s financial condition or business transactions might be ascertained, unless such act
or failure to act was justified under the circumstances of the case.
Standard: Reasonableness, i.e. what type of records would we expect this type of debtor
to have.
iv. Debtor knowingly or fraudulently, in connection with the case, make a false oath or
account, false claims, bribes, or withholds relevant information from the bankruptcy
trustee
v. Debtor failed to explain satisfactorily any loss of assets or deficiency of assets to meet
the debtor’s liabilities . . . goes along with (3).
vi. Debtor has refused to obey any lawful order of the court/ revoked their privilege of
self-incrimination after debtor has been granted immunity.

b. Denying Specific Discharge:

i. Any type of taxes that an individual owes are going to be non-dischargeable. Taxes and
DSO’s are 2 debts that are both going to be non-dischargeable and priority claims b/c
Congress has decided that as a social policy matter that repayment of those debts is more
important than the fresh start given to debtors though the discharge.
ii. Any debt obtained through false pretenses, false representation, or actual fraud. Note
that anyone with a close relationship to a debtor is an insider.
iii. Or a debt that is based upon a statement in writing . . . on which debtor relied and
debtor caused to be made or published with intent to deceive.
We are requiring more than creditor leant money to debtor—has to be a statement in
writing concerning financial condition on which creditor relied and that there was intent
to deceive.
This has been used in situations where someone has a credit card and goes to casino and
use cc to withdraw money; application for credit card—you have to fill in income so
there is a writing; agreement states that the credit card holder is going to be able to pay all
debts.
iv. For purposes of (a), consumer debts owed to single creditor . . . are presumed not
dischargeable and presumably cash advances are not dischargeable within 90 days of
bankruptcy; the term luxury goods or services does not include anything reasonably
necessary for the support/maintenance of the debtor.
v. If the debtor doesn’t list a debt in their BR filing, then the debt will not be discharged.
The debtor also must list their creditors, so the BR court can send notice to those
creditors. Debts are only discharged if the constitutional requirements of proper notice
are met. Notice doesn’t mean actual notice to creditors necessarily, but there is lots of
constructive notice (i.e. newspaper).
vi. Fraud while a fiduciary, embezzlement or larceny.
vii. DSO (defined in §101—doesn’t include property settlement obligations that arise
form a divorce decree—SEE also (a)(15)).
viii. Willful and malicious injury (intentional tort) by debtor to another entity or to their
property.
ix. Fines, penalties payable to government entity.
x. Any federally guaranteed educational loan is going to be non-dischargeable unless it
would impose an undue hardship.
For cases on student loans, court is more likely to find undue hardship where debtor has
bills but also has dependents.
Example: Czar goes to med school. Runs up debt on a guaranteed school loan. Czar asks
Aunt Alice if she will sign off the interest rates, and he will sign a promissory note
protecting her from the rest of the debt. Aunt Alice pays off the student debt, and Czar
signs off on the promissory note. 3 weeks later the Czar files for BR. Is that debt to
Czar’s aunt non-dischargeable under §532(a)(8)? If you are a clever scoundrel, then you
can probably get away with not repaying. You might be able to use (a)(2), but a clever
debtor will probably wait a while to take that out.
xi. Debt for death or personal injury caused by drunk driving, boating, or flying
(basically anything with a motor)—does NOT apply to property.
xii. Payment of any federal criminal order of restitution.
xiii. Debt incurred to pay a tax to a governmental unit other than US or incurred to pay
fines and penalties under federal election law—situation where people pay taxes on credit
cards, then file BR seeking to discharge the bill.
xiv. Any debts other than DSOs that arise from a divorce case will also be non-
dischargeable debt.
c. Reaffirmation of Debts
With regard to specific debt (SEE § 524), the debtor and their creditors agree debt will
not be discharged but will be paid under conditions the parties agree to.
Why? With regard to some secured debts, you might want to reaffirm a debt where you
have pledged collateral that is vital to your existence, i.e. cars, or with unsecured debt (in
order to start future line of credit/maintain business r-ship), or reaffirm debt out of
gratitude.
Problems: Worried about consumers being preyed upon plus fraud.
Congress is concerned that creditors are going to prey on unsophisticated debtors.
Remember, the trustee does not represent the debtor.
Reaffirmation is not a violation of the automatic stay—courts permit this.

Reaffirmation of Secured Debt—Possibilities for Debtor:

Debtor can turn collateral over to the creditor.
Reaffirmation
Redemption (this refers to redeeming collateral) → BR law seeks to disrupt property
rights as minimally as possible. All the debtor has to pay to redeem property in BR is the
value of the collateral.
There was a 4th possibility up unto the revisions in 2005. This is the “Ride Through
Option.” This is that liens ride through BR unless there’s a provisions that avoids them.

Reaffirmation of Unsecured Debt → Concerned that debtor is being preyed upon by the
creditor.
Reaffirmation under §524(a)(4) is an extremely complicated procedure.
If a debtor is represented by an atty, the atty must represent to the court saying that the
reaffirmation will not constitute an undue hardship to the debtor going forward.
Reaffirmation must be in writing and filed with the court.
There’s a cooling off period b/w time that reaffirmation agreement is filed with the court
and the court enters the reaffirmation giving debtor time to change his mind.
If no atty, then courts gives debtor equivalent of Miranda.
No one is forced to reaffirm a debt. The only thing a creditor has no choice about is
redemption of collateral under §722, but beyond that reaffirmation is voluntary process.

2. Effects of Discharge: 523-25

Not all debts are discharged. The debts discharged vary under each chapter of the
Bankruptcy Code. Section 523(a) of the Code specifically excepts various categories of
debts from the discharge granted to individual debtors. Therefore, the debtor must still
repay those debts after bankruptcy. Congress has determined that these types of debts are
not dischargeable for public policy reasons (based either on the nature of the debt or the
fact that the debts were incurred due to improper behavior of the debtor, such as the
debtor's drunken driving).
The most common types of nondischargeable debts are certain types of tax claims, debts
not set forth by the debtor on the lists and schedules the debtor must file with the court,
debts for spousal or child support or alimony, debts for willful and malicious injuries to
person or property, debts to governmental units for fines and penalties, debts for most
government funded or guaranteed educational loans or benefit overpayments, debts for
personal injury caused by the debtor's operation of a motor vehicle while intoxicated,
debts owed to certain tax-advantaged retirement plans, and debts for certain
condominium or cooperative housing fees.
The types of debts described in sections 523(a)(2), (4), and (6) (obligations affected by
fraud or maliciousness) are not automatically excepted from discharge. Creditors must
ask the court to determine that these debts are excepted from discharge. In the absence of
an affirmative request by the creditor and the granting of the request by the court, the
types of debts set out in sections 523(a)(2), (4), and (6) will be discharged.

Secured creditors may retain some rights to seize property securing an underlying debt
even after a discharge is granted. Depending on individual circumstances, if a debtor
wishes to keep certain secured property (such as an automobile), he or she may decide to
"reaffirm" the debt. A reaffirmation is an agreement between the debtor and the creditor
that the debtor will remain liable and will pay all or a portion of the money owed, even
though the debt would otherwise be discharged in the bankruptcy. In return, the creditor
promises that it will not repossess or take back the automobile or other property so long
as the debtor continues to pay the debt.

If the debtor decides to reaffirm a debt, he or she must do so before the discharge is
entered. The debtor must sign a written reaffirmation agreement and file it with the court.
11 U.S.C. § 524(c). The Bankruptcy Code requires that reaffirmation agreements contain
an extensive set of disclosures described in 11 U.S.C. § 524(k). Among other things, the
disclosures must advise the debtor of the amount of the debt being reaffirmed and how it
is calculated and that reaffirmation means that the debtor's personal liability for that debt
will not be discharged in the bankruptcy. The disclosures also require the debtor to sign
and file a statement of his or her current income and expenses which shows that the
balance of income paying expenses is sufficient to pay the reaffirmed debt. If the balance
is not enough to pay the debt to be reaffirmed, there is a presumption of undue hardship,
and the court may decide not to approve the reaffirmation agreement.

3. Revocation of Discharge:
The court may revoke a discharge under certain circumstances. For example, a trustee,
creditor, or the U.S. trustee may request that the court revoke the debtor's discharge in a
chapter 7 case based on allegations that the debtor: obtained the discharge fraudulently;
failed to disclose the fact that he or she acquired or became entitled to acquire property
that would constitute property of the bankruptcy estate; committed one of several acts of
impropriety described in section 727(a)(6) of the Bankruptcy Code; or failed to explain
any misstatements discovered in an audit of the case or fails to provide documents or
information requested in an audit of the case. Typically, a request to revoke the debtor's
discharge must be filed within one year of the discharge or, in some cases, before the date
that the case is closed. The court will decide whether such allegations are true and, if so,
whether to revoke the discharge.