Chapter 7 bankruptcy liquidation

Law Office of 
Charles E. Andersen

Chapter 7 is also know as straight bankruptcy if you don't want to repay any debt, chapter 7 is an option to consider
Bankruptcy attorneys in Elmira
The US Trustee is a participant in a chapter 7 Hon. John C. Ninfo chief US Bankruptcy Court Judge US Bankruptcy Court
Law firm

of Charles E. Andersen









Confirmation Hearing: After proper notice, the bankruptcy court conducts a hearing to determine whether a proposed plan satisfies the elements necessary for confirmation. An objection to confirmation may be filed by any party in interest.

Requirements for Confirmation:  A plan will be confirmed only if it satisfies the following statutory requirements:

a. Plan complies with Code provisions: the plan must comply with the applicable provisions of the Bankruptcy Code, such as the requirements for classification of claims and the mandatory contents of a Chapter 11 plan.

b. Proponent complies with Code provisions: The proponent of the plan must comply with the applicable provisions of the bankruptcy code, such as those concerning disclosure and solicitation of acceptances.

c. Plan in good faith: The plan must be proposed in good faith by the bankruptcy lawyer for the debtor

d. Payment for services or expenses approved:  All payments for services or expenses related to the plan (e.g., attorney's fees) must be approved by the court as reasonable, where the payments are made by the proponent of the plan, the bankruptcy debtor, or a person issuing securities or receiving property under the plan.

e. Officers, directors, insiders disclosed: The plan must disclose the names and affiliations of all individuals who will be officers, directors, or voting trustees of the debtor or a successor to the debtor after confirmation (consistent with the interests of creditors, equity security holders, and public policy), and the names and proposed compensation of all insiders who will be employed or retained by the reorganized debtor.

f. Rate change approved: Where the debtor's rates are regulated by a governmental commission, any rate change proposed by the plan must be approved by the commission.

g. "Best interests of creditors test" met: Each holder of a claim or interest of an impaired class either must (i) have accepted the plan or (ii) receive under the plan property having a present value, as of the effective date of the plan, of not less than the amount that the holder would receive in a Chapter 7 liquidation. (This element of confirmation usually is called the "best interests of creditors test.")

( 1 ) Exception: Where a holder has made the election under section 1111(b) of the bankruptcy code, the plan must provide that she receive property having a present value, as of the effective date of the plan, of at least the value of the collateral securing her claim.

h. All impaired classes accept plan: Each class of claims or interests must have accepted the plan or be unimpaired under the plan.
( 1 ) Note: If this element (section 1129(a)(8)) is the only element not met for confirmation of a proposed plan under section, the plan might still he confirmed by a cram down under section bankruptcy code 1129(b) .

I. At least one impaired class of creditors accepts plan: the plan impairs any class of claims, then the plan must be accepted by at least one class of claims that is impaired, excluding any acceptances by insiders of the consenting class. This element has the effect of preventing a cram down (i.e. , confirmation under Bankruptcy Code section 1129(b);  under circumstances where none of the impaired classes of claims has accepted the plan.

j. Administrative expenses and involuntary gap claims provided for: Each claim that is entitled to priority as an administrative expense or as an involuntary case gap claim must be paid completely in cash, on the effective dale of the plan, unless the holder of the claim consents to different treatment.

k. Third, fourth, fifth, and sixth priority claims provided for: Each class of claims entitled to priority for wages, contributions to an employee benefit plan, grain farmers or United States fishermen, or consumer layaways must he dealt with as follows, unless the holder of a particular claim consents to different treatment

(I) If the class has accepted the plan, each claimant is entitled to receive deferred cash payments having a present value, as of the effective date of the plan, equal to the allowed amount of her claim.

(1) Until class has rejected the plan, each claimant must receive total payment of her claim, in cash, on the effective date of the bankruptcy plan.

Seventh priority tax claims provided for: Unless it consents to different treatment, each tax claimant that is entitled to seventh priority must receive deferred cash payments having a present value, as of the effective date of the plan, equal to the allowed amount of the claim. The payout period may not extend beyond six years following the date that the tax was assessed. While the cases vary on the amount of what interest rate to apply, it has been held that the prevailing market rate for a loan of similar duration and risk is appropriate. (Note: Although the interest rate prescribed by 26 U.S.C. section 6621 for delinquent tax claims is relevant to ascertaining the prevailing market rate, it should not be conclusive, since it usually lags behind the current market rate and fails to account for factors such as risk and the length of time allowed for payment under the plan.)


Plan is feasible: The bankruptcy plan must be feasible, which means that it has a reasonable probability of being successful and that it is unlikely that, following confirmation, there will be a need for a liquidation or any further reorganization not proposed in the plan.
n. Bankruptcy fees paid: All bankruptcy fees required under 28 U.S.C. section 1930 must be paid or will be paid on or before the effective date of the plan.
o. Retiree insurance benefits protected: The plan must provide for the continued payment of all retiree benefits at the level established before bankruptcy unless (i) a modification is agreed to by the trustee (or debtor in possession) and the authorized representative of the recipients, or (ii) the court orders the payments to be modified in accordance with Bankruptcy Code  §1129(a)(13)
3. Cram Down: A plan can be confirmed where all of the above requirements have been satisfied except section 1129(a)(8), which requires that every class of claims or interests either has accepted the plan or is unimpaired under the plan. Thus, upon request by the proponent of a plan, the court will confirm the plan, despite the rejection
by one or more impaired classes, if the plan is not unfairly discriminatory and is fair and equitable with respect to any dissenting impaired classes. Bankruptcy Code §1129(b)(l)

a. Unfair discrimination: To determine whether discriminatory treatment of a dissenting class is fair, the court considers the following factors:
(i) Whether there is a reasonable basis for the discriminatory treatment;
(ii) Whether the plan could be implemented without the discrimination,
(Hi) The presence or absence of good faith; and
(iv) The manner in which the class is treated under the plan.
(1) Example: Debtor Corporation files a Chapter 11 plan, designating seven classes of claims. Class 111 consists of a disputed and unliquidated tort claim for $35,000,000. Class IV consists of undisputed, general unsecured claims held by trade creditors and attorneys totaling $171,000. The plan proposes to pay the Class IV creditors fifty cents on the dollar, without interest, over thirty-six months, and to pay the Class III claimant $50,000 in cash, from guaranteed funds of bankruptcy Debtor Corporation's president, within 180 days after confirmation. Under the above standard, the plan does not discriminate unfairly against the Class III creditor, whose disputed and unliquidated claim will be paid regardless of the future success or failure of Debtor Corporation.

b. Fair and equitable: The Bankruptcy Code provides specific guidelines for determining whether a plan is fair and equitable with respect to a particular class. These tests differ according to whether the class is comprised of secured claims, unsecured claims, or equity interests.
(1) Secured claims: For secured claims, the plan must propose one of the following three methods of treatment if it is to be considered fair and equitable:
(a) Secured party retains lien and receives deferred cash payments:
 Here, the creditor retains her lien on the collateral for the allowed amount of the claim and also receives payment in deferred cash installments that total at least the allowed amount of the secured claim and that have a present value, as of the effective date of the plan, of at least the value of the collateral.
1) Interest rate: In determining present value, many courts require the debtor to pay the interest rate "charged by institutional lenders for similar commercial transactions" as the prevailing market rate

2) If a partially secured creditor elects, under Bankruptcy Code section 1111(b), to have her entire claim treated as secured, then the deferred cash payments in a cram down must equal the full dollar amount of her allowed claim (without interest) and must have a present value of at least the value of the collateral
(b) Secured party receives indubitable equivalent:  The second method provides that the creditor realize the indubitable equivalent of her secured claim.
1) Example: Creditor's receipt of twenty-one individual buyers' notes secured by twenty-one separate pieces of real property was held to constitute the indubitable equivalent of Creditor's first mortgage on 200 acres of land, where the present value of the notes was $153,777, the total debt was $153,521, and the value of the twenty-one lots was $287,500.

2) Example: Under-secured creditor's receipt of the actual property securing its claim constituted indubitable equivalence of its secured claim.
(c) Collateral sold and lien attaching to proceeds treated as above:
 The third method provides for the collateral to be sold free and clear of the creditor's lien, with the lien to attach to the proceeds of the sale and to be treated in a manner described in (a) or (b) above Note that the sale is subject to the creditor's right, under bankruptcy code section 363(k), to bid at the sale, purchase the property, and offset her claim against the purchase price

(2) Unsecured claims: For a class of unsecured claims, the plan must propose one of the two following methods of treatment if it is to be considered fair and equitable:

(a) Each creditor receives property equal to allowed claim:  Each creditor of the class receives property (although not necessarily cash—e.g., notes, stock, or other property of the debtor) having a present value, as of the effective date of the plan, equal to the allowed amount of her claim.

(b) Senior classes fully paid before junior classes: No creditor or holder of an interest that is junior to the class receives or retains any property at all. This principle is known as the absolute priority rule, and
it requires full payment to senior classes before any distribution can be made to junior classes.
1) Example: Where a bankruptcy debtor corporation is insolvent, the absolute priority rule prevents shareholders from retaining their interest in the business, absent the consent of all classes of unsecured creditors whose claims are not fully paid.
2) "New value exception":  The courts are split concerning the continuing validity of a pre-Code, judicially created exception allowing equity security holders to retain an interest where they  vest new capital constituting a substantial contribution that is at least equal to the value of the interest retained.
(3) Equity interests: For a class of interests, the plan must propose one of the two following methods of treatment if it is to be considered fair and equitable:
(a) Holder receives or retains property equal to fixed liquidation preference, fixed redemption price, or equity interest holder receives or retains property having a present value, as of effective date of the plan, equal to any applicable fixed liquidation preference, any applicable fixed redemption price, or the value of her equity interest, whichever is the greatest.
(b) Senior classes fully paid before junior classes: No interest holder that is junior to the class receives or retains any property at all.

(4) Valuation:  To determine whether a bankruptcy plan is fair and equitable with respect to a dissenting class of unsecured claims or equity interests, it may be necessary for the court to value the reorganized debtor as a going concern. This process usually involves the capitalization of the future expected average yearly earnings of the reorganized corporation, based upon an appropriate capitalization rate over the estimated future life of the entity.


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Chapter 7&13

If you qualify



  • Creditor Harassment
  • Stop utility shutoffs
  • eliminate payments on unsecured debts.
  • Improve bad credit
  • Surrender car, and other secured collateral without incurring a "deficiency"

**For 13 cases with wage order and balance paid through a trustee as part of a partial re-payment plan and not paid directly to the attorney. Court filing fee is extra.

  • Emergency Petitions filed
  • Ask to see a statement of clients rights and responsibilities


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