/* 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. */