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| Chapeter - Liquidation Proceedings |
| This is the most familiar type of bankruptcy proceeding.
A debtor declares his or her debts and gives all assets to a trustee, who sells the nonexempt assets and distributes
the proceeds to creditors. |
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A. Who can file for a liquidation?
Any "person"-individuals, partnerships, and corporations (spouses can file jointly)-except railroads,
insurance companies, banks, savings and loan associations, and credit unions.
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B. Filing the petition
- Voluntary Bankruptcy
- The Debtor Files a Petition with the Court
The petition includes schedules (lists) of (1) creditors and the debt to each, (2) the debtor's financial affairs,
(3) the debtor's property, and (4) current income and expenses.
- Filing of the Petition Constitutes an Order for Relief
The clerk of the court must give the trustee and creditors notice of the order within not more than twenty days.
- Substantial Abuse
A court can dismiss a petition if granting it would constitute substantial abuse (if the debtor seeks only an
advantage over creditors and his or her financial situation does not warrant a discharge of debts) [11 U.S.C. Section 707(b)].
- Involuntary Bankruptcy
A debtor's creditors can force the debtor into bankruptcy proceedings.
- Who Can Be Forced into Involuntary Proceedings?
A debtor with twelve or more creditors, three or more of whom (with unsecured claims of at least $11,625)
file a petition. A debtor with fewer than twelve creditors, one or more of whom (with a claim of $11,625) files.
Not a farmer or a charitable institution.
- When an Order for Relief Will Be Entered
If the debtor does not challenge the petition, the debtor is generally not paying debts as they come due,
or a receiver, assignee, or custodian took possession of the debtor's property within 120 days before the petition was filed.
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C. Automatic Stay
When a petition is filed, an automatic stay suspends all action by creditors against the debtor.
The adequate protection doctrine protects secured creditors by requiring payments, or other
collateral or relief, to the extent that the stay may cause the value of their collateral to decrease.
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D. Property Of the Estate
- What Property Is Included in the Debtor's Estate Interests in property presently held;
community property; property transferred in a transaction voidable by the trustee; proceeds
and profits; after-acquired property; interests in gifts, inheritances, property settlements, and life
insurance death proceeds to which the debtor becomes entitled within 180 days after filing.
- What Property Is Not Included Interests in property presently held;
community property; property transferred in a transaction voidable by the trustee; proceeds
and profits; after-acquired property; interests in gifts, inheritances, property settlements, and life
insurance death proceeds to which the debtor becomes entitled within 180 days after filing.
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