Attorney Robert Schaller Explains Chapter 7 Rules

Attorney Robert Schaller

Attorney Robert Schaller notes that the Bankruptcy Code provides six basic types of bankruptcy cases. Each type of bankruptcy case is codified in a distinct “chapter” of the Bankruptcy Code.  11 U.S.C. § 101 et seq. Each type of bankruptcy case is identified by the Bankruptcy Code “chapter” number that contains the substantive bankruptcy law applicable to that respective type of bankruptcy case. For example, the substantive bankruptcy laws relating to a “Chapter 7” bankruptcy case are contained in Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 701 et seq.  The substantive laws relating to a “Chapter 13” bankruptcy case are contained in Chapter 13 of the Bankruptcy Code.  11 U.S.C. § 1301 et seq.  

In this post, attorney Robert Schaller focuses on Chapter 7, which is titled “Liquidation” but colloquially called “bankruptcy” or “straight-bankruptcy.”  Chapter 7 cases are the most common type of bankruptcy case.  Chapter 7 relief may be sought by both individuals and non-individuals such as corporations, partnerships, and limited liability companies (LLC).  Amendments to the Bankruptcy Code enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) require the application of a “means test” to determine whether an individual consumer debtor financially qualifies for Chapter 7 relief.  If a debtor’s income exceeds certain thresholds, the debtor may not be eligible for Chapter 7 relief and may have to seek relief from another bankruptcy chapter, typically Chapter 13.

A Chapter 7 case is technically called a liquidation case because the Bankruptcy Code contemplates an orderly, court-supervised liquidation procedure by which a trustee takes possession of the assets of the debtor’s estate, reduces the assets to cash, and makes distributions to creditors, subject to the debtor’s right to retain certain exempt property and the rights of secured creditors.  Because there is typically little or no non-exempt property in most Chapter 7 cases, there may not be an actual liquidation of the debtor’s assets. Such a case is called a “no-asset” case and the debtor retains all unencumbered assets. A creditor holding an unsecured claim will get a pro-rata distribution from the bankruptcy estate only if the case is an “asset-case” and the creditor files a timely proof of claim with the bankruptcy court.

In most Chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him/her from personal liability for certain dischargeable debts.  The debtor normally receives a discharge just a few months after the bankruptcy petition is filed.  Non-individuals are not issued a discharge.  The debtor is protected by the discharge injunction after the discharge order is entered. 

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More intensive bankruptcy training is offered by Schaller Bankruptcy Masterclass,, which offers 121 courses and 136 videos.  These courses are also authored by attorney Robert Schaller.