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Posted on in Chapter 7

Your Chapter 7 trustee may pay your priority debts—in full or in part—through the proceeds of the sale of your unprotected, not exempt assets.


Our last blog post was about what happens to priority debts in a no-asset Chapter 7 case. Most consumer “straight bankruptcy” Chapter 7 cases are no-asset ones. This means that the bankruptcy trustee does not take anything from the debtor because everything is protected, “exempt.” The trustee does not take and liquidate any assets, and has nothing—no assets—to distribute to the debtor’s creditors. That’s a no-asset Chapter 7 case.

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A creditor may ask the bankruptcy court to let another court finish a lawsuit about liability and/or the amount of damages.

“Relief from the Automatic Stay”

Our last blog post was about the possibility of a creditor asking for “relief from the automatic stay.” The automatic stay refers to the immediate protection you receive from debt collection as soon as you file bankruptcy. (See Section 362 of the U.S. Bankruptcy Code about the “Automatic stay.”)

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Sometimes in bankruptcy doing the honestly right thing can cause you major problems. Making preference payments is a good example of this.


The Understandable Inclination to Pay a Favored Creditor

If you’re having financial problems and considering bankruptcy, you might feel compelled to first take care of a special debt. You may owe a relative or friend who is in real need of the money. You may feel deep and legitimate pressure to pay part or all of it in spite of your own financial problems. You may figure, accurately or not, that you won’t be allowed to pay this person after filing bankruptcy. Or for various reasons you may not want to involve this person in your bankruptcy case. You may not want to have him or her know about it. So you figure the best way to do that is to pay off or settle the debt beforehand.

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Chapter 7 “asset” cases may sound scary. They needn’t be. We walk you through a very straightforward example to demystify this.

Asset and No-Asset Chapter 7 Cases

Our last blog post discussed the difference between a no-asset and asset Chapter 7 case. Simply put, in a no-asset case everything you own is covered and protected by available property exemptions. So your trustee takes nothing from you. In contrast, in an asset case, something you own is not covered by a property exemption. So the trustee takes it, sells (“liquidates”) it, and distributes the proceeds to your creditors.

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Posted on in Chapter 7

Most Chapter 7 cases are “no-asset” ones. So, what’s an “asset case,” and is it good or bad for you?

The More Common No-Asset Case

The Chapter 7 bankruptcy option is sometimes confusingly called “liquidation” bankruptcy. That implies that something you own gets “liquidated”—sold. But in most consumer Chapter 7 cases that’s not what happens.

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