Who May Be a Chapter 7 Debtor?

A chapter 7 debtor may be an individual, partnership, corporation or other business entity. 11 U.S.C. §§ 101(41) and 109(b). Only a person or entity which “resides or has a domocile, a place of business, or property in the United States” may be a debtor. 11 U.S.C. § 109(b).  Debtors are eligible for relief whether they are solvent or insolvent and regardless of the amount of their debt. See In re Marshall, 721 F3d. 1032 (9th Cir. 2013). The Bankruptcy Code is silent as to the availability of relief for minors, but courts have recognized minor debtors and Federal Rule of Bankruptcy Procedure 1004.1 created procedures for filings by court appointed representatives or next friends. See In re Murray, 199 B.R. 165 (Bankr. M.D. Tenn. 1996) (mother of 7 year old could file as next friend).  Incompetent persons may also be debtors. See In re Zawisza, 73 B.R. 929 (Bankr. E.D. Pa. 1987) (next friend could file on behalf of incompetent person).  Certain individual consumer debtors may be ineligible for relief because of “means test” restrictions created by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). If a debtor's "current monthly income" (1) is more than the state median, the Bankruptcy Code requires application of a "means test" to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor's aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $12,475, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $7,025. (2)

The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor's consent) or will be dismissed. 11 U.S.C. § 707(b)(1). An individual cannot file under chapter 7 or any other chapter, however, if during the preceding 180 days a prior bankruptcy petition was dismissed due to her willful failure to appear before the court or comply with orders of the court, or the she voluntarily dismissed a previous case after a creditor sought relief from the automatic stay to recover property upon which it held a lien. 11 U.S.C. §§ 109(g), 362(d) and (e).  In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless she has received credit counseling from an approved credit counseling agency either in an individual or group briefing within 180 days before filing. 11 U.S.C. §§ 109, 111.  This requirement may be waived in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide counseling.

Individuals receive discharges for most of their debts in a chapter 7 bankruptcy. Creditors are barred from initiating or continuing any action to collect discharged debts. Not all debts are discharged in chapter 7. Debts excluded from discharge include: alimony, child support and certain other divorce decree obligations, certain taxes, certain educational benefit overpayments, loans made or guaranteed by a governmental unit, willful and malicious injury, fraud, defalcation, death or personal injury caused by operation of a motor vehicle while intoxicated from alcohol and criminal restitution orders. 11 U.S.C. § 523(a). Debts for money or property obtained by false pretenses, fraud or defalcation while acting in a fiduciary capacity, and debts for willful and malicious injury by the debtor to another entity or to the property of another entity will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable. 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c).

The court may revoke a chapter 7 discharge if the discharge was obtained through fraud by the debtor, if a debtor held property of the estate and knowingly and fraudulently failed to report the property or surrender the property to the trustee, or if the debtor makes a material misstatement or fails to provide documents or other information in connection with an audit of the his case. 11 U.S.C. § 727(d).

Samuel D. Hodson
Partner, Taft Stettinius & Hollister LLP