For example, secured creditors will have taken less risk, because the credit that they will have extended is usually backed by collateral, such as assets of the debtor company.
[citation needed] In a Chapter 7 case, a corporation or partnership does not receive a bankruptcy discharge, whereas an individual may (see 11 U.S.C. § 727(a)(1)).
The debts of the corporation or partnership theoretically continue to exist until applicable statutory periods of limitations expire.
Most liens, however (such as real estate mortgages and security interests for car loans), survive.
[2] Common exceptions to discharge include child support, income taxes less than three years old, property taxes, student loans (unless the debtor prevails in a difficult-to-win adversary proceeding brought to determine the dischargeability of the student loan), and fines and restitution imposed by a court for any crimes committed by the debtor.
Spousal support is likewise not covered by a bankruptcy filing, nor are property settlements through divorce.
That must be balanced against the removal of actual debt from the filer's record by the bankruptcy, which tends to improve creditworthiness.
Another aspect to consider is whether the debtor can avoid a challenge by the United States Trustee to his or her Chapter 7 filing as abusive.
Trustee has achieved a regulatory system that Congress and most creditor-friendly commenters have consistently espoused, i.e., a formal means test for Chapter 7.
Creditworthiness and the likelihood of receiving a Chapter 7 discharge are some of the issues to be considered in determining whether to file bankruptcy.
The legislation was enacted after years of lobbying efforts by banks and lending institutions and was intended to prevent abuses of the bankruptcy laws.
The means test provides for a finding of abuse if the debtor's disposable monthly income is higher than a specified floor amount or portion of their debts.
The inapplicability to non-consumer debt allows business debtors to "abuse" credit without repercussion unless the court finds "cause."
"Special circumstances" does not confer judicial discretion; rather, it gives a debtor an opportunity to adjust income by documenting additional expenses or loss of income in situations caused by a medical condition or being called or order to active military service.
However, the assumption of abuse is only rebutted where the additional expenses or adjustments for loss of income are significant enough to change the outcome of the means test.
§109(h) provides that a debtor will no longer be eligible to file under either Chapter 7 or Chapter 13 unless within 180 days prior to filing, the debtor received an "individual or group briefing" from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator.
BAPCPA attempted to eliminate the perceived "forum shopping" by changing the rules on claiming exemptions.