Asset Classes

A Chapter 7 bankruptcy involves the liquidation of assets and distribution of the proceeds to entities that have a claim against the bankruptcy estate.  These claims are paid in a priority order; if there is not enough money to go around some debts may be discharged by the bankruptcy court.  It is possible that there will be money left over for the debtor; it is also possible that there will be no assets available to liquidate at all.  The Los Angeles Bankruptcy Firm understands the Chapter 7 process and counsels clients regarding their particular financial situation, helping clients decide whether Chapter 7 is their best option for a fresh financial start.

Priority Claims

Certain claims against the bankruptcy estate are paid before any others.  These include administrative bankruptcy fees and other fees charged against the estate, a certain amount of wages owed to the debtor's employees, court-ordered child support, and tax payments.

Secured Creditors

A secured creditor is one who has a security interest on property as collateral for a debt.  When the secured asset is liquidated in bankruptcy, the secured creditor gets the full amount of the proceeds if necessary to satisfy the debt.  A secured creditor may be oversecured or undersecured, depending on the value of the collateral in relation to the amount still owed on the debt. 

Unsecured Creditors

Unsecured creditors who file a valid proof of claim receive a share in the liquidation of assets after all relevant secured creditors have been paid.

Late Claims

In order for creditors to get a share of the liquidated assets to satisfy their claims, they must file a proof of claim with the court after receiving notice of the bankruptcy.  A creditor who misses the deadline for filing a proof of claim may still be allowed to file a late claim, although this places the creditor in a separate class with lower priority than creditors who filed their claims on time.

Penalties and Interest

Any punitive penalties, such as prepetition tax penalties, are payable out of any surplus left after the other classes of claims have been paid.  Next, interest which accrued after the petition was filed on preexisting claims may be paid.

The Debtor

After all the claims, penalties, and interest have been paid, if there is still any money left over from the liquidation, it belongs to the debtor.

The "No Asset" Case

Between the multitude of asset exemptions and the exclusion of secured assets from bankruptcy, it is quite possible that a debtor will not have any assets to liquidate in a Chapter 7.  In that case, the bankruptcy is known as a "no asset" bankruptcy, and the debtor may wind up freed from most or all of his or her unsecured debts without having to sell off any assets.

The Client is Always our Priority

While the bankruptcy court and trustee sort out which creditors and claimants get priority to receive proceeds from the liquidation, our priority remains with you, making sure that your interests are protected and that the bankruptcy proceeds in your best interests.  To better understand the bankruptcy process and how a Chapter 7 could improve your personal financial situation, contact The Los Angeles Bankruptcy Firm for a free consultation.