Assessing Creditor Rights Under Chapter 7 Bankruptcy

Are you a creditor and you just found out that your debtor declared Chapter 7 bankruptcy?  You probably find it confusing and you are not sure what you need to do next.  We can help.  First, read my earlier article on bankruptcy. Then review this article on assessing creditor rights under Chapter 7 bankruptcy.

Chapter 7 is the most common form of bankruptcy in the United States.  Quite simply, the purpose of a Chapter 7 bankruptcy is to have a trustee sell the assets of a debtor and pay creditors.  The trustee pays secured creditors first.   Immediately afterwards, the trustee pays unsecured creditors if any proceeds are left in the estate. Secured creditors are creditors who have a legal right against some of the debtor’s property.  In addition, debtors must pass a means test to file for Chapter 7 bankruptcy.  The means test for the State of Maryland is described at http://www.marylandbankruptcy.com/means-test/.

Ultimately, a Chapter 7 discharge releases individual debtors from personal liability for most debts and prevents creditors from taking collection actions against the debtor.

Non-Discharged Debts

Some debts (such as alimony, child support, and student loans) cannot be discharged in a Chapter 7 bankruptcy. The State of Maryland publishes a list of nondischargeable debt  at http://www.marylandbankruptcy.com/nondischarge.html.

Generally, there are only a few grounds for denying a debtor a discharge in a chapter 7 bankruptcy.  For example, the court may deny the debtor a discharge if it finds that the debtor failed to produce adequate financial records or committed a crime.  Creditors can try to keep certain debts from getting discharged. Additionally, creditors may wish to contact an attorney to discuss whether any exceptions to the chapter 7 discharge rules applies to their debts.

Trustees

When a debtor files for Chapter 7 bankruptcy, the court places a stay on the debtor’s current debts. This stops creditors from collecting payments, garnishing wages, foreclosing on debtor’s home, repossessing property, etc. The court takes legal possession of the debtor’s property and appoints a trustee to the case. 

The trustee’s job is to review the debtor’s finances and assets and oversee the Chapter 7 bankruptcy. They will sell certain property and use the proceeds to repay creditors. The trustee will also arrange and run a meeting between the debtors and creditors. 

During the bankruptcy proceedings, the debtor may wish to keep certain secured property (such as an automobile). The debtor and creditor would sign a reaffirmation agreement.  A reaffirmation will state that the debtor will remain liable for the debt. In return, the creditor promises not to take back the property if the debtor continues to pay the debt.

The attorneys at Kind and Dashoff, LLC are experts at assessing creditor rights under Chapter 7 bankruptcy. They are available to help you collect your delinquent accounts.