Debtors who don't have a lot of property often file for bankruptcy according to Chapter VII of the Bankruptcy Law, because according to the requirements of Chapter VII, debtors must sell most of their property to pay off their creditors. Generally, debtors with a large amount of property will not apply for bankruptcy under Chapter VII, but will turn to bankruptcy proceedings under Chapter XIII (Adjustment of Personal Debt), because according to the provisions of Chapter XIII, after the debtor's debts are written off in bankruptcy proceedings, the debtor can still keep a considerable part of the property.
Sometimes, as consumers, debtors file for bankruptcy in order to cancel their debts and get a "fresh start". According to Chapter VII bankruptcy, the debtor must liquidate his property to pay his creditors. We call it "Chapter VII Bankruptcy Case". Chapter VII In bankruptcy proceedings, the bankruptcy court appoints a trustee to be responsible for liquidating the debtor's property. However, even under Chapter VII bankruptcy proceedings, the debtor can still keep part of the property. The bankruptcy law refers to the property that the debtor can keep as "exempt property".
According to American law, the debtor can keep a certain amount of exempted property when filing for bankruptcy. The amount of exempted property varies according to the local legislation of each state, and some States stipulate that the debtor's house and car are exempted property. For example, New York State stipulates that movable property is $25,000 and real estate 10000. American bankruptcy legislation holds that an honest debtor has suffered misfortune after being declared bankrupt, and creditors should tolerate the debtor and allow him to keep some property to maintain his basic life. Otherwise, bankrupt debtors often rely on social relief to live and increase the social burden.
If the debtor stops paying due debts or loses solvency, the creditor may also apply for bankruptcy of the debtor according to Chapter VII to liquidate the debtor's property. This is called involuntary bankruptcy.
According to the law, Chapter VII bankruptcy can be filed by the debtor voluntarily or by the debtor's three creditors. It is rare for creditors to apply for Chapter VII bankruptcy.
When the debtor applies for bankruptcy, the "automatic suspension" takes effect. The function of "automatic suspension procedure" is to temporarily prevent creditors from claiming debts from debtors. Chapter 7, Chapter 1 1 (reorganization) and Chapter 13 (personal debt adjustment) of the United States Bankruptcy Law are all applicable to the "automatic suspension procedure". Once the automatic suspension procedure takes effect, the creditor's right of recourse against the debtor is invalid, and the bankruptcy court can also impose sanctions on the creditor's right of recourse against the debt. At this time, the creditor may not call or write to the debtor. "Automatic suspension of litigation" is one of the most powerful clauses in American bankruptcy law. The automatic termination program has two purposes. First, give the debtor a "breathing space" so that the debtor can think about the case and find a way to reorganize or liquidate; Secondly, it helps to prevent creditors from "rushing to court" and "plundering" the debtor's remaining property. During the effective period of the automatic suspension procedure, creditors need not worry that other creditors will secretly acquire the debtor's property. All creditors can rest assured that the debtor's property will not be taken away by others first.
At the end of the bankruptcy proceedings, the automatic suspension proceedings also become invalid. Before the end of bankruptcy proceedings, the only way for creditors to obtain the debtor's property is to apply to the bankruptcy court for "automatic suspension of relief", that is, to apply to the bankruptcy court for permission to recover the debtor's specific property. Usually it is the secured creditor who can make such an application. If the creditor with security interest can prove to the court that the value of the collateral is greatly decreasing and the debtor has not taken measures to protect the creditor's security interest in the collateral, at this time, the court can "terminate the automatic suspension procedure" and allow the creditor to recover the collateral.
When the debtor applies for bankruptcy according to Chapter VII, all the debtor's property becomes "Chapter VII property" according to the relevant provisions of the United States Bankruptcy Law. The court appointed a "Chapter VII trustee" to receive and clean up the debtor's bankruptcy property. After deducting the "exempted property" according to the laws of the local state, the trustee gives the debtor's remaining property to the creditor with secured property rights or the general creditor who sells it to pay off the unsecured property rights.
Chapter VII Bankruptcy administrators get relatively fixed remuneration. However, if the trustee diligently recovers a large amount of property for the creditor, at this time, the trustee can be paid according to a certain proportion of the bankrupt property recovered and sold by him. This reward payment mechanism is conducive to encouraging the trustee in Chapter VII to carefully examine the debtor's assets and business, and to prevent the debtor from hiding his property in order to avoid debts.
When the debtor's property is liquidated according to Chapter VII of the United States Bankruptcy Law, creditors with security interests have priority over ordinary creditors without security interests. Although before the bankruptcy case is completely settled, the creditor with security interest may not exercise the right to dispose of the collateral without authorization because of the existence of automatic suspension procedure, such collateral will eventually be handed over to the creditor with security interest or sold to pay off the creditor with security interest. If the value of the collateral is greater than the secured debt, the creditor is an "over-secured" creditor, and his creditor's rights can be fully satisfied. If the value of collateral is less than the value of creditor's rights, the creditor's rights are not adequately secured. Part of the debt that the collateral is not enough to pay off is converted into unsecured ordinary debt.
Chapter VII In bankruptcy proceedings, all ordinary creditors without security interests are equally protected. After the bankruptcy property is sold, all ordinary creditors can get a share of the proceeds from the sale of the bankruptcy property. If a single creditor has 70% unsecured claims against the bankrupt debtor, the creditor is entitled to 70% of the proceeds from the sale of the bankrupt property. Exceptionally, some creditor's rights are legally called "priority" creditor's rights, which have priority over other creditor's rights in the order of repayment, such as bankruptcy attorney's fees and Chapter VII bankruptcy custody fees.
Once the court confirms that in the bankruptcy proceedings, the debtor acted in good faith and paid off the creditors with all the exempted property, at this time, the debtor's outstanding debts will be written off, that is, these outstanding debts will no longer be legally enforceable. However, some debts of the debtor can never be written off even through bankruptcy proceedings. These debts include child support, divorced spouse support, debts caused by drunk driving and debts caused by intentional or malicious damage by debtors.
In addition, if the court thinks that the debtor's bankruptcy application is fraudulent, or that allowing the debtor's debts to be written off will constitute a "substantial abuse" of the bankruptcy law, the court can cancel the bankruptcy case. Once the case is revoked by the court, the automatic suspension procedure will be invalid and the creditor can recover the debt from the debtor. Even if the debtor has the right to cancel his debt according to the law, he can still "reaffirm the agreement" with the creditor and continue to pay off the specific debt to the creditor.