/* Chapter 7, formerly known as "straight bankruptcy" is by far

the most common type of bankruptcy file. We begin with part 1 of

2 of Chapter 7. */

CHAPTER 7

Liquidation

SUBCHAPTER I

Officers and Administration

SECTION 701 (11 U.S.C. 701)

701. Interim trustee.

(a)(1) Promptly after the order for relief under this chapter,

the United States trustee shall appoint one disinterested person

that is a member of the panel of private trustees established

under section 586(a)(1) of title 28 or that is serving as trustee

in the case immediately before the order for relief under this

chapter to serve as interim trustee in the case.

(2) If none of the members of such panel is willing to serve as

interim trustee in the case, then the United States trustee may

serve as interim trustee in the case.

/* One of the reasons why this section says "may" is that in the

case of toxic waste dumps, the title holder is responsible for

remediation regardless of the status of the title holder. In some

cases, no one has been willing to serve. */

(b) The service of an interim trustee under this section

terminates when a trustee elected or designated under section 702

of this title to serve as trustee in the case qualifies under

section 322 of this title.

(c) An interim trustee serving under this section is a trustee in

a case under this title.

SECTION 702 (11 U.S.C. 702)

702. Election of trustee.

(a) A creditor may vote for a candidate for trustee only if such

creditor-

(1) holds an allowable, undisputed, fixed, liquidated, unsecured

claim of a kind entitled to distribution under sections

726(a)(2), 726(a)(3), 726(a)(4), 752(a), 766(h), or 766(i) of

this title;

(2) does not have an interest materially adverse, other than an

equity interest that is not substantial in relation to such

creditor's interest as a creditor, to the interest of creditors

entitled to such distribution; and

/* A secured creditor, however, cannot be the trustee. */

(3) is not an insider.

(b) At the meeting of creditors held under section 341 of this

title, creditors may elect one person to serve as trustee in the

case if election of a trustee is requested by creditors that may

vote under subsection (a) of this section, and that hold at least

20 percent in amount of the claims specified in subsection (a)(1)

of this section that are held by creditors that may vote under

subsection (a) of this section.

(c) A candidate for trustee is elected trustee if-

(1) creditors holding at least 20 percent in amount of the claims

of a kind specified in subsection (a)(1) of this section that are

held by creditors that may vote under subsection (a) of this

section vote; and

(2) such candidate receives the votes of creditors holding a

majority in amount of claims specified in subsection (a)(1) of

this section that are held by creditors that vote for a trustee.

(d) If a trustee is not elected under this Section, then the

interim trustee shall serve as trustee in the case.

/* A chat with several clerks of bankruptcy courts reveals that

they could not remember even one election. */

SECTION 703 (11 U.S.C. 703)

703. Successor trustee.

(a) If a trustee dies or resigns during a case, fails to qualify

under section 322 of this title, or is removed under section 324

of this title, creditors may elect, in the manner specified in

section 702 of this title, a person to fill the vacancy in the

office of trustee.

(b) Pending election of a trustee under subsection (a) of this

section, if necessary to preserve or prevent loss to the estate,

the United States trustee may appoint an interim trustee in the

manner specified in section 7O1(a).

(c) If creditors do not elect a successor trustee under

subsection (a) of this section or if a trustee is needed in a

case reopened under section 350 of this title, then the United

States trustee-

(1) shall appoint one disinterested person that is a member of

the panel of private trustees established under section 586(a)(1)

of title 28 to serve as trustee in the case; or

(2) may, if none of the disinterested members of such panel is

willing to serve as trustee, serve as trustee in the case.

SECTION 704 (11 U.S.C. 704)

704. Duties of trustee. The trustee shall-

(1) collect and reduce to money the property of the estate for

which such trustee serves, and close such estate as expeditiously

as is compatible with the best interests of parties in interest;

(2) be accountable for all property received;

(3) ensure that the debtor shall perform his intention as

specified in section 521(2)(B) of this title;

(4) investigate the financial affairs of the debtor;

(5) if a purpose would be served, examine proofs of claims and

object to the allowance of any claim that is improper;

(6) if advisable, oppose the discharge of the debtor;

(7) unless the court orders otherwise, furnish such information

concerning the estate and the estate's administration as is

requested by a party in interest;

(8) if the business of the debtor is authorized to be operated,

file with the Court, with the United States trustee, and with any

governmental unit charged with responsibility for collection or

determination of any tax arising out of such operation, periodic

reports and summaries of the operation of such business,

including a statement of receipts and disbursements, and such

other information as the United States trustee or the court

requires; and

(9) make a final report and file a final account of the

administration of the estate with the court and with the United

States trustee.

SECTION 705 (11 U.S.C. 705)

705. Creditors' committee.

(a) At the meeting under section 341(a) of this title, creditors

that may vote for a trustee under section 702(a) of this title

may elect a committee of not fewer than three, and not more than

11, creditors, each of whom holds an allowable unsecured claim of

a kind entitled to distribution under section 726(a)(2) of this

title.

(b) A committee elected under subsection (a) of this section may

consult with the trustee or the United States trustee in

connection with the administration of the estate, make

recommendations to the trustee or the United States trustee

respecting the performance of the trustee's duties, and submit to

the court or the United States trustee any question affecting the

administration of the estate.

/* Although Chapter 11 creditor's committees are traditional and

in some cases useful, Chapter 7 creditor's committees are

unusual. */

SECTION 706 (11 U.S.C. 706)

706. Conversion.

(a) The debtor may convert a case under this chapter to a case

under chapter 11, 12, or 13 of this title at any time, if the

case has not been converted under section 1112, 1307, or 1208 of

this title. Any waiver of the right to convert a case under this

subsection is unenforceable.

(b) On request of a party in interest and after notice and a

hearing, the court may convert a case under this chapter to a

case under chapter 11 of this title at any time.

(c) The court may not convert a case under this chapter to a case

under chapter 12 or 13 of this title unless the debtor requests

such conversion.

/* The case of a family farmer under Chapter 12 cannot be

converted to Chapter 7. */

(d) Notwithstanding any other provision of this section, a case

may not be converted to a case under another chapter of this

title unless the debtor may be a debtor under such chapter.

SECTION 707 (11 U.S.C. 707)

707. Dismissal.

(a) The court may dismiss a case under this chapter only after

notice and a hearing and only for cause, including

(1) unreasonable delay by the debtor that is prejudicial to

creditors;

(2) nonpayment of any fees or charges required under chapter 123

of title 28; and

(3) failure of the debtor in a voluntary case to file, within

fifteen days or such additional time as the court may allow after

the filing of the petition commencing such case, the information

required by paragraph (1) of section 521, but only on a motion by

the United States trustee.

(b) After notice and a hearing, the court, on its own motion or

on a motion by the United States trustee, but not at the request

or suggestion of any party in interest, may dismiss a case filed

by an individual debtor under this chapter whose debts are

primarily consumer debts if it finds that the granting of relief

would be a substantial abuse of the provisions of this chapter,

There shall be a presumption in favor of granting the relief

requested by the debtor.

SUBCHAPTER II

Collection, Liquidation, and Distribution of the Estate

SECTION 721(11 U.S.C. 721)

721. Authorization to operate business. The court may authorize

the trustee to operate the business of the debtor for a limited

period, if such operation is in the best interest of the estate

and consistent with the orderly liquidation of the estate.

/* The principal being that Chapter 7 requires that the assets be

liquidated as quickly as possible. */

SECTION 722 (11 U.S.C. 722)

722. Redemption. An individual debtor may, whether or not the

debtor has waived the right to redeem under this section, redeem

tangible personal property intended primarily for personal,

family, or household use, from a lien securing a dischargeable

consumer debt, if such property is exempted under section 522 of

this title or has been abandoned under section 554 of this title,

by paying the holder of such lien the amount of the allowed

secured claim of such holder that is secured by such lien.

SECTION 723 (11 U.S.C. 723)

723. Rights of partnership trustee against general partners.

(a) If there is a deficiency of property of the estate to pay in

full all claims which are allowed in a case under this chapter

concerning a partnership and with respect to which a general

partner of the partnership is personally liable, the trustee

shall have a claim against such general partner for the full

amount of the deficiency.

(b) To the extent practicable, the trustee shall first seek

recovery of such deficiency from any general partner in such

partnership that is not a debtor in a case under this title.

Pending determination of such deficiency, the court may order any

such partner to provide the estate with indemnity for, or

assurance of payment of, any deficiency recoverable from such

partner, or not to dispose of property.

(c) Notwithstanding section 728(c) of this title, the trustee has

a claim against the estate of each general partner in such

partnership that is a debtor in a case under this title for the

full amount of all claims of creditors allowed in the case

concerning such partnership. Notwithstanding section 502 of this

title, there shall not be allowed in such partner's case a claim

against such partner on which both such partner and such

partnership are liable, except to any extent that such claim is

secured only by property of such partner and not by property of

such partnership. The claim of the trustee under this subsection

is entitled to distribution in such partner's case under section

726(a) of this title the same as any other claim of a kind

specified in such section.

(d) If the aggregate that the trustee recovers from the estates

of general partners under subsection (c) of this section is

greater than any deficiency not recovered under subsection (b) of

this section, the court, after notice and a hearing, shall

determine an equitable distribution of the surplus so recovered,

and the trustee shall distribute such surplus to the estates of

the general partners in such partnership according to such

determination.

SECTION 724 (11 U.S.C. 724)

724. Treatment of certain liens.

(a) The trustee may avoid a lien that secures a claim of a kind

specified in section 726(a)(4) of this title.

(b) Property in which the estate has an interest and that is

subject to a lien that is not avoidable under this title and that

secures an allowed claim for a tax, or proceeds of such property,

shall be distributed --

(I) first, to any holder of an allowed claim secured by a lien on

such property that is not avoidable under this title and that is

senior to such tax lien;

(2) second, to any holder of a claim of a kind specified in

sections 507(a)(1), 507(a)(2), 507(a)(3), 507(a)(4), 507(a)(5),

or 507(a)(6) of this title, to the extent of the amount of such

allowed tax claim that is secured by such tax lien;

(3) third, to the holder of such tax lien, to any extent that

such holder's allowed tax claim that is secured by such tax lien

exceeds any amount distributed under paragraph (2) of this

subsection;

(4) fourth, to any holder of an allowed claim secured by a lien

on such property that is not avoidable under this title and that

is junior to such tax lien;

(5) fifth, to the holder of such tax lien, to the extent that

such holder's allowed claim secured by such tax lien is not paid

under paragraph (3) of this subsection; and

(6) sixth, to the estate,

(c) If more than one holder of a claim is entitled to

distribution under a particular paragraph of subsection (b) of

this section, distribution to such holders under such paragraph

shall be in the same order as distribution to such holders would

have been other than under this section.

(d) A statutory lien the priority of which is determined in the

same manner as the priority of a tax lien under section 6323 of

the Internal Revenue Code of 1954 (26 U.S.C. 6323) shall be

treated under subsection (b) of this section the same as if such

lien were a tax lien.

SECTION 725 (11 U.S.C. 725)

725. Disposition of certain property. After the commencement of

a case under this chapter, but before final distribution of

property of the estate under section 726 of this title, the

trustee, after notice and a hearing, shall dispose of any

property in which an entity other than the estate has an

interest, such as a lien, and that has not been disposed of under

another section of this title.

SECTION 726 (11 U.S.C. 726)

726. Distribution of property of the estate.

(a) Except as provided in section 510 of this title, property of

the estate shall be distributed

(1) first, in payment of claims of the kind specified in, and in

the order specified in, section 507 of this title;

(2) second, in payment of any allowed unsecured claim, other than

a claim of a kind specified in paragraph (1), (3), or (4) of this

subsection, proof of which is-

(A) timely filed under section 501(a) of this title;

(B) timely filed under section 501(b) or 501(c) of this title; or

(C) tardily filed under section 501(a) of this title, if-

(i) the creditor that holds such claim did not have notice or

actual knowledge of the case in time for timely filing of a proof

of such claim under section 501(a) of this title; and

(ii) proof of such claim is filed in time to permit payment of

such claim;

(3) third, in payment of any allowed unsecured claim proof of

which is tardily filed under section 501(a) of this title, other

than a claim of the kind specified in paragraph (2)(C) of this

subsection;

(4) fourth, in payment of any allowed claim, whether secured or

unsecured, for any fine, penalty, or forfeiture, or for multiple,

exemplary, or punitive damages, arising before the earlier of the

order for relief or the appointment of a trustee, to the extent

that such fine, penalty, forfeiture, or damages are not

compensation for actual pecuniary loss suffered by the holder of

such claim;

(5) fifth, in payment of interest at the legal rate from the date

of the filing of the petition, on any claim paid under paragraph

(1), (2), (3), or (4) of this subsection; and

(6) sixth, to the debtor.

/* For any of those chuckling while reading this section, this

does happen from time to time when creditors simply refuse to

file proofs of claim. */

(b) Payment on claims of a kind specified in paragraph (1), (2),

(3), (4), (5), (6) or (7) of section 507(a) of this title, or in

paragraph (2), (3), (4), or (5) of subsection (a) of this

section, shall be made pro rata among claims of the kind

specified in each such particular paragraph, except that in a

case that has been converted to this chapter under section 1112,

1208, or 1307 of this title, a claim allowed under section 503(b)

of this title incurred under this chapter after such conversion

has priority over a claim allowed under section 503(b) of this

title incurred under any other chapter of this title or under

this chapter before such conversion and over any expenses of a

custodian superseded under section 543 of this title.

(c) Notwithstanding subsections (a) and (b) of this section, if

there is property of the kind specified in section 541(a)(2) of

this title, or proceeds of such property, in the estate, such

property or proceeds shall be segregated from other property of

the estate, and such property or proceeds and other property of

the estate shall be distributed as follows:

(1) Claims allowed under section 503 of this title shall be paid

either from property of the kind specified in section 541(a)(2)

of this title, or from other property of the estate, as the

interest of justice requires.

(2) Allowed claims, other than claims allowed under section 503

of this title, shall be paid in the order specified in subsection

(a) of this section, and, with respect to claims of a kind

specified in a particular paragraph of section 507(a) of this

title or subsection (a) of this section, in the following order

and manner:

(A) First, community claims against the debtor or the debtor's

spouse shall be paid from property of the kind specified in

section 541(a)(2) of this title, except to the extent that such

property is solely liable for debts of the debtor.

(B) Second, to the extent that Community claims against the

debtor are not paid under subparagraph (A) of this paragraph,

such community claims shall be paid from property of the kind

specified in section 541 (a)(2) of this title that is solely

liable for debts of the debtor.

(C) Third, to the extent that all claims against the debtor

including community claims against the debtor are not paid under

subparagraph (A) or (B) of this paragraph such claims shall be

paid from property of the estate other than property of the kind

specified in Section 541(a)(2) of this title.

(D) Fourth, to the extent that community claims against the

debtor or the debtor's spouse are not paid under subparagraph

(A), (B), or (C) of this paragraph, such claims shall be paid

from all remaining property of the estate.

/* We continue with Chapter 7 in part two. */