(1) Ordinarily, secured creditors are paid out of their collateral.

(2) Unsecured priority claimants receive distribution ahead of the general unsecured creditors.

(3) If there is not enough money to pay all claims at a particular level, claimants within that level take a pro rata share.

(4) Liens for certain kinds of penalties can be avoided by the trustee, and tax liens are subject to subordination.

(5) Special rules apply to partnership debtors when there are insufficient assets to pay all the claims against the partnership. Questions arise as to whether the debtor should receive a discharge under Chapter 7. Look for any of the ten grounds for denial of a discharge (e.g., the debtor is not an individual, or she transferred property with the intent to hinder, delay, or defraud a creditor). If the facts do not show any of the grounds for denial, a discharge must be granted, although under appropriate circumstances, a discharge may be revoked. Finally keep in mind that the debtor may convert a Chapter 7 case to Chapter 11, 12, or 13 if the case has not been converted earlier and the debtor is eligible under the other chapter. Also, the court may dismiss a case for cause or if a consumer debtor has substantially abused Chapter 7 relief

Eligibility for Relief:  A person (individual, partnership, or corporation) that resides or has a domicile, a place of business, or property in the United States may be a debtor under Chapter 7, unless specifically excepted. (B.C. § 109(a), (b))

a. Exceptions: The following persons are not eligible to be debtors under Chapter 7 [B.C. §109(b)]:

(1) Railroads [B.C. §109(b)(l)];

(2) Domestic banks, insurance companies, credit unions, savings and loan associations, building and loan associations, homestead associations, cooperative banks, and other similar institutions [B.C. §109(b)(2)];

(3) Foreign banks, insurance companies, and other similar financial institutions, that are engaged in business in the United States [B.C. § 109(b)(3)]; and

(4) An individual or a family farmer who was a debtor in a case that was dismissed in the preceding 180 days because of the debtor's intentional failure to obey court orders or to appear before the court, or because of the debtor's request for a voluntary dismissal of the case following a party's request for relief from the automatic stay [B.C. §109(g)].

Chapter 7 Trustee