Bankruptcy relief under Chapter 7 bankruptcy seeks to provide a debtor with a fresh start. Success, however, requires compliance with two separate aspects of the law: the substantive provisions and the procedural, or timeliness, requirements. After the initial steps of filing the proper documents regarding income and financial affairs, including exempt property, an automatic stay applies in most cases that precludes creditors from pursuing a debtor for payments.
The trustee appointed to administer the estate holds a meeting with the debtor and creditors between 21 and 40 days after the bankruptcy filing. In addition to providing notice of bankruptcy consequences, this meeting, along with investigations by the trustee regarding exempt assets, will determine whether the debtor has sufficient assets for creditors to liquidate and satisfy the debt owed. Most Chapter 7 cases classify a debtor’s assets as exempt or subject to liens. The trustee then generates a “no distribution” report.
“No distribution” report a significant factor
A recent court case highlights the significance of an automatic stay under bankruptcy law. A creditor sought relief from an automatic stay regarding a debtor’s interest in an LLC. The Chapter 7 trustee initially objected on the grounds of a need to complete the first meeting of creditors and investigate further. On the same day the trustee subsequently withdrew his objection, the court abandoned the debtor’s interest from the estate and lifted the stay on the debtor’s interest in the LLC. A week later, the trustee filed a Report of No Distribution for the case.
The court denied the debtor’s motion that sought to set aside the stay relief order. Arguing the Federal Rules of Civil Procedure, applicable under the Federal Rules of Bankruptcy, the debtor failed on two grounds. First, the debtor failed to file the motion within one year. Second, the debtor failed to explain the “extraordinary circumstances” to rebut the “no distribution” report filed by the trustee to set aside within one year after the order was issued.
Experience matters
The most common type of filing chosen by consumers, a Chapter 7 bankruptcy, demands attention to detail. A debtor can easily lose sight of what assets to include or exclude, whom to notify and when and where to submit proper documentation. Attorneys who understand the legal requirements can offer guidance.
