BANKRUPTCY

CS 890P-3 Bankruptcy – Chapter 7 Procedures

09/86 Revised 06/15/23 Training Completed 06/29/23 Last Reviewed 11/04/25

11 U.S.C. § 101; 11 U.S.C. § 362; 11 U.S.C. § 501(a), 11 U.S.C. § 502(a), 11 U.S.C. § 507(a)(1); 11 U.S.C. § 523; U.C.A. 78B-2-112; Bankruptcy Court Local Rule

General Information – Chapter 7 Liquidation

A Chapter 7 bankruptcy or “straight bankruptcy” is the most popular form of bankruptcy because it allows the debtor to eliminate all debts and start over. A bankruptcy court can grant a discharge to individuals, couples, corporations and partnerships when there is insufficient income to cover the debts. A bankruptcy discharge releases the debtor from certain types of debt(s) filed in the original bankruptcy plan or causes the debt(s) to be unenforceable. A discharge of the debtor’s debts normally occurs within four to six months from the date of filing. Child support debts cannot be discharged.

A “means test” is used to determine if the individual can file for Chapter 7. If s/he has more income than the test allows, or if the court finds that the individual is abusing the system (e.g., filing a petition in “bad faith”), the case is dismissed or may be converted to a Chapter 13.

At the time of a Chapter 7 discharge, the trustee must provide notice to the child support claimant and the local IV-D Agency of the following information:

1. The discharge;

2. Last known address of the debtor;

3. Last known name and address of the debtor’s employer; and,

4. The name of each creditor that holds a claim not discharged under the following subsections of the bankruptcy act:

a. 11 U.S.C. § 523 (a)(2) – False statements and consumer debt of $500.00 within 90 days;

b. 11 U.S.C. § 523 (a)(4) – Fraud and embezzlement;

c. 11 U.S.C. § 523 (a)(14A) – Taxes other than federal taxes; and,

d. Each creditor that has entered reaffirmation with the debtor.

NOTE: At this point in the bankruptcy proceedings, the IV-D agency or child support claimant may request the debtor’s last known address from the creditor. The creditor is not liable under any other law for releasing this information to the IV-D agency or child support claimant.

Because of the new requirement for a Chapter 7 bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (refer to CS 890P Bankruptcy – Overview, Definitions, Forms, and Alerts/Events), there should be fewer Chapter 7 bankruptcies filed.

Chapter 7 Procedures

Notification of a Chapter 7 bankruptcy may occur through one of the following ways:

· Attorney;

· Bankruptcy Filed alert;

· Custodial Parent (CP);

· Noncustodial Parent (NCP);

· ORS Administrative Staff (see CS 890P); or,

· Copy of the Notice of Bankruptcy.

If you are notified of a bankruptcy in any of the above ways or in any other way, it is important to follow-up on the information as the stay on enforcement and/or other restrictions are effective, even if you do not receive a copy of the Notice of Bankruptcy document.

After you receive notification of a Chapter 7 bankruptcy, take the steps listed below:

1. Verify that the NCP has filed a Chapter 7 bankruptcy.

2. Update ORSIS: Once you confirm the bankruptcy, update the information on ORSIS.

ORSIS must be completed even if the case is suspended or pending so that ORSIS is able to send an alert to all workers in ORS who may have a case with the NCP. Therefore, if the assigned agent receives the bankruptcy notice first, it is his/her responsibility to update ORSIS, even if the case is suspended, pending, or closed. This allows ORSIS to send an alert to all workers within ORS who may have a case with this particular NCP.

Before money is refunded (e.g., money from a tax intercept or income withholding), review the case with the appropriate attorney to determine if money may be kept and applied to the arrears. If money is refunded, send it to the appropriate bankruptcy trustee along with the Bankruptcy Attorney/Trustee Notification Letter. For information about obtaining the address information for bankruptcy trustees, refer to CS 890P Bankruptcy – Overview, Definitions, Forms, and Alert/Events.

3. Ensure that the Notice of Bankruptcy has been imaged into Content Manager.

4. Proof of Claim: Do not file a Proof of Claim on a Chapter 7 bankruptcy unless you are directed to do so by either the Bankruptcy Court or the assigned Assistant Attorney General (AAG). The court trustee will notify the court to send a notice to all creditors listed on the mailing matrix and request that they file a Proof of Claim, if necessary. If a Proof of Claim is requested for an NCP filing a Chapter 7, refer to the procedures found in CS 890P-6 Bankruptcy – Proof of Claim Procedures.

5. Income Withholding: Do not release a Notice to Withhold Income for Child Support that is in place at the time an NCP files Chapter 7 bankruptcy. Pursuant to 11 U.S.C. § 101(14A)(A)(i) and (ii) and 11 U.S.C. § 362 (b), ORS may continue to collect all current and past-due support obligations, including monthly medical support premiums for the child(ren). Enforcing the medical insurance premium for the child(ren) is equal to enforcing current support in bankruptcy situations. In addition to enforcing current support, you must also gather medical insurance information and enforce the child’s portion of the insurance premium to the extent possible (see CS 490P Enforcement of Medical Insurance).

6. Automatic Payment Withdrawal (APW): When ORSIS is coded appropriately, the APW must be terminated and an NTW should be issued. Refer to CS 750P Automatic Payment Withdrawal for procedures on terminating the APW. Follow the procedures above for income withholding.

7. Determine if a referral should be made to the AGO: All AGO referrals for bankruptcy are worked by the appropriate attorney. Therefore, if it appears that something should be filed with the Bankruptcy Court or if there are questions surrounding the bankruptcy, contact the appropriate attorney immediately.

NOTE: Because all AGO referrals are monitored by the assigned AAG for bankruptcies, an email may be sent by the assigned AAG to the agent asking if the agent wants the AGO to take an action on a case if it appears that an AGO action is appropriate, even if an AGO referral has not already been completed by the agent. Because of the time frames associated with bankruptcy, it is critical that agents respond back to the assigned AAG immediately.

8. Monitor bankruptcy proceedings: Update ORSIS as you receive updates from the Bankruptcy Court.

NOTE: It is possible to receive a new bankruptcy case number before you receive notification of the original bankruptcy dismissal. Sometimes the Notice of Dismissal is received two or three weeks after the new Notice of Bankruptcy. Should this happen, contact the appropriate attorney to confirm the dismissal of the original bankruptcy before adding the new bankruptcy case number to ORSIS. If the NCP re-files for bankruptcy, it will require a new Proof of Claim (see CS 890P-6 Bankruptcy – Proof of Claim Procedures).

Chapter 7 Bankruptcy Completed/Dismissed

After the bankruptcy trustee has closed the case (e.g., it has been discharged or dismissed), you may proceed with any and all appropriate enforcement actions against the NCP. For more information on bankruptcy dismissal and/or discharge, refer to CS 890P-7 Bankruptcy – AGO Referrals, Duration of Judgment, and Bankruptcy Completed/Dismissed.