When you file for Chapter 7 bankruptcy all of your non-exempt assets become property of the “bankruptcy estate”. A trustee is then hired to administer this estate, ensuring that all of your assets are managed and liquidated in such a way that creditors would obtain the maximum compensation.
There are two basic types of Chapter 7 filing:
- ‘Asset’ filings
- ‘No asset’ filings
The vast majority of Chapter 7 cases are ‘no asset’ by their very nature. What we mean by this is that when somebody files for this type of bankruptcy they are seeking a complete discharge their debts, and there are no monies to be distributed amongst the creditors listed on the bankruptcy petition.
An ‘Asset Chapter 7” bankruptcy case is where the person filing for bankruptcy, after all exemptions, liens and mortgages are taken into account; the estate has assets which can be sold to pay off some or all of their debts. These types of bankruptcy cases are extremely rare, but they can and do come before the bankruptcy courts. Creditors are informed in writing when a Chapter 7 ‘asset’ bankruptcy petition is filed, allowing creditors them to file a claim which indicates the type of debt is owed them and the full value of that debt.
Creditors Meeting
Once your petition for a Chapter 7 filing has been filed you must then attend the creditors meeting, which involves meeting with your trustee, and perhaps some of your creditors. In the case of a ‘no asset’ filing it’s rare for a creditor to attend because they know that most of the debtor’s assets will be marked as exempt, meaning they’ll gain nothing in financial terms from attending the meeting.
In the case of an ‘asset’ filing you can and should expect creditors to attend this meeting as they have at least something to gain financially from attending i.e. you have assets which are non-exempt, so these same assets can then be liquidated, and the creditors will get some proceeds.
The exceptions to the above are:
- Your assets are so small they’re not worth collecting and liquidating to pay your debts off
- The cost of recovering and distributing the asset is more than the legal fees required in doing so
- The asset is considered “burdensome” and not worth the effort of liquidating e.g. a grow house, a business which has a negative balance sheet, or any other asset which isn’t worth the headache of dealing with