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trustee (or the bankruptcy court in Alabama and North Carolina) appoints an impartial case trustee to administer the case and liquidate the debtor's nonexempt assets. The trustee accomplishes this by selling the debtor's property if it is free and clear of liens (as long as the property is not exempt) or if it is worth more than any security interest or lien attached to the property and any exemption that the debtor holds in the property. Under § 726, there are six classes of claims; and each class must be paid in full before the next lower class is paid anything. In return, the creditor promises that it will not repossess or take back the automobile or other property so long as the debtor continues to pay the debt. Unless the debtor is represented by an attorney, the bankruptcy judge must approve the reaffirmation agreement.

Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

Commencement of a bankruptcy case creates an "estate." The estate technically becomes the temporary legal owner of all the debtor's property. The debtor may repay any debt voluntarily, however, whether or not a reaffirmation agreement exists. Debts not discharged include debts for alimony and child support, certain taxes, debts for certain educational benefit overpayments or loans made or guaranteed by a governmental unit, debts for willful and malicious injury by the debtor to another entity or to the property of another entity, debts for death or personal injury caused by the debtor's operation of a motor vehicle while the debtor was intoxicated from alcohol or other substances, and debts for certain criminal restitution orders.

A governmental unit, however, has 180 days from the date the case is filed to file a claim. A creditor in a chapter 7 case who has a lien on the debtor's property should consult an attorney for advice. But not all of an individual's debts are discharged in chapter 7.

A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure by allowing them to "catch up" past due payments through a payment plan. (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. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.

Moreover, the court may dismiss a chapter 7 case filed by an individual whose debts are primarily consumer rather than business debts if the court finds that the granting of relief would be an abuse of chapter 7. 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. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. Subject to the means test described above for individual debtors, relief is available under chapter 7 irrespective of the amount of the debtor's debts or whether the debtor is solvent or insolvent.

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