Bankruptcy is a process implemented by federal law and guaranteed by the U. S. Constitution that provides relief for debtors, who can either eliminate or repay all or a portion of their debts. Chapter 7 “liquidation” is the process by which debtors wipe out or “discharge” many of their debts.
The Federal Rules of Bankruptcy Procedure provide that a party in interest may move for reconsideration of an order allowing or disallowing a claim against the estate and that the court after a hearing on notice should enter an appropriate order. The reconsideration of a claim cannot upset proper distributions already made to holders of other allowed claims.
Unsecured debt may be generally described as a debt where credit was granted based solely upon the promise or ability of the debtor to pay. Claims that are not secured by any collateral or subject to setoff are generally unsecured claims. For purposes of bankruptcy, unsecured claims are classified and paid based on a priority list described in the Bankruptcy Code. Each class must be paid in full before the next lower class is paid anything.
The Bankruptcy Code governs the use, sale, or lease of property in bankruptcy. The trustee may use, sell, or lease the property of the estate other than in the ordinary course of business only after notice and a hearing. If the business of the debtor is authorized to be operated under Chapter 7, Chapter 11, or Chapter 13, the trustee or debtor-in-possession may, without notice or hearing, use, sell, or lease property of the estate in the ordinary course of business.
A voluntary case is commenced by filing a petition by the debtor with the bankruptcy court. The commencement of a voluntary case generally results in an order for relief from debts under the relevant chapter. An involuntary case is rare and usually commenced by filing a petition with the bankruptcy court under Chapter 7 or 11 by a number of creditors.