When a Kentucky resident files a petition for Chapter 7 bankruptcy, the U.S. trustee appoints the case to an impartial trustee who liquidates the nonexempt assets of the debtor. If all of the assets are exempt or subject to valid and approved security interests, they are not distributed to unsecured creditors, and the trustee usually submits a no asset report to the court.
A majority of individual bankruptcy cases filed under Chapter 7 result in no asset reports. When there are assets to be distributed, however, the trustee does so in a way that takes full advantage of the unsecured creditors’ returns. If the property that the debtor owns is free of liens or is valued at more than the lien or security interest tied to it, the trustee may sell it. The trustee could also try to recover property or money under avoiding powers, which include setting aside special transfers to creditors, pursuing non-bankruptcy claims, and reversing security interests or other previous transfers not perfected under non-bankruptcy law when the petition was filed.
In Chapter 7 asset cases, unsecured creditors need to file claims with the court within 90 days after the filing for bankruptcy is submitted, while government units have 180 days to file claims. Secured creditors are not required to file claims but may do so to preserve their lien or interest. Debtors are only paid when each of the creditors’ claims are fully paid. The primary concern for the debtor is retaining exempt property and receiving a discharge.
Chapter 7 bankruptcy could be the right option for individuals who are having trouble paying their bills because of job losses or unexpected medical expenses. There are eligibility requirements connected with Chapter 7 that a bankruptcy lawyer can explain.
Source: United States Courts, “Liquidation Under the Bankruptcy Code“, November 03, 2014