Chapter 7 bankruptcy cases tend toward the routine. The debtor files a bankruptcy petition, the trustee holds a “Meeting of Creditors” wherein the debtor is questioned under oath about the bankruptcy and a trustee determines whether the debtor has any assets that may be sold to pay his/her creditors.  If the trustee finds there are no assets, he/she files a “No Asset” report advising of same.

Many debtors that file Chapter 7 bankruptcies have little to no unprotected (or “non-exempt”) assets that a bankruptcy trustee could liquidate and sell for the benefit of creditors.  A non-exempt asset is an asset that is not protected by the law and may be sold to satisfy a bankruptcy.

In the majority of those cases, where delinquent owners file Chapter 7 bankruptcies, associations receive notices that the trustee has filed a “No Asset” Report, which is a report that lets the Court (and creditors) know that there are no assets to be liquidated and sold; therefore, there will be no distribution of proceeds to creditors. In other words, there won’t be any money, honey.

But what happens when there are assets to be liquidated and sold?

If a debtor files Chapter 7 bankruptcy where assets are available to the trustee to sell for the benefit of creditors, the trustee will sell the available assets and distribute them to creditors who have filed “proof of claims” with the bankruptcy court.

So what should an association look for to determine whether a Chapter 7 may have dividends to distribute? The trustee will issue a “Notice of Possible Dividends” with the Court. This Notice states that any creditor desiring to participate in a distribution of assets must file a “proof of claim” with the Court on or before a certain date that will also be listed in the Notice. If a creditor fails to file the proof of claim by that deadline, the creditor may not receive its potential share of dividend.

Distributions of assets are made in accordance with the Bankruptcy Code, which contains six classes of claims. Each claim will fall into a specific class and will receive dividends accordingly.

Keep in mind that selling assets and distribution of proceeds can occur even while a debtor receives a discharge of the bankruptcy. The bankruptcy court can issue an order discharging the debtor of the pre-petition qualifying debts while the bankruptcy case remains open pending the actions of the trustee in an asset case.

If you have additional questions regarding Chapter 7 bankruptcies, please contact an Altitude Community Law attorney at 303.432.9999.


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