chapter 7 bankruptcy case does not involve the filing of a plan of repayment like a reorganization Chapter 11 or Chapter 13. Instead, the bankruptcy trustee is assigned to the case and his/her job is to gather and liquidate the debtor’s nonexempt assets to pay creditors. The Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee can liquidate the debtor’s remaining assets. The primary goal of the chapter 7 bankruptcy case is to obtain a discharge of a debtors dischargeable debts without (or with as little as possible) repayment. As such, it is important that when considering a bankruptcy, proper analysis of existing assets and strategic counseling should be obtained.
The bankruptcy trustee may also attempt to recover money or property under the trustee’s “avoiding powers.” The trustee’s avoiding powers include the power to: set aside preferential transfers made to creditors within 90 days (or 1 year when the creditor is an insider) before the petition; undo security interests and other prepetition transfers of property that were not properly perfected under nonbankruptcy law at the time of the petition; and also pursue nonbankruptcy claims such as fraudulent conveyances available under state law. As such, it is highly recommended that, prior to filing a bankruptcy case, a debtor to properly analyze any potential avoidance claims that a bankruptcy trustee might be able to bring due to a bankruptcy filing.