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States by a foreign representative serving as an administrator, trustee, liquidator or similar position in
connection with a foreign insolvency proceeding and is beyond the scope of these materials.

The Bankruptcy Code is organized such that the rules and procedures for conducting a case under each
chapter of the code are laid out in that chapter. Thus, the procedures for Chapter 7 of the Bankruptcy
Code are included in U.S. Code (USC) Title 11, Bankruptcy, Chapter 7; the specific rules for Chapter 9
are contained in 11 USC, Chapter 9; and so on for Chapters 11, 12, and 13.

Chapter 7 — Liquidation

Chapter 7 of the Bankruptcy Code provides for the liquidation of the nonexempt assets of the debtor
with the distribution of net proceeds going to creditors. In a Chapter 7 case, an independent trustee is
appointed or elected and is charged with the responsibility to (a) monetize the debtor’s assets; (b) satisfy
postpetition obligations of the estate; (c) make distributions to creditors; and (d) close the estate. Much
like Chapters 11 and 13, a Chapter 7 case is triggered by the filing of a petition which, among other
things, creates the bankrupt estate and gives rise to the automatic stay. In addition, a case can be con-
verted from a Chapter 11 or Chapter 13 case to a Chapter 7 case. There are numerous disclosure and fil-
ing obligations of a Chapter 7 filer. The filer must file a Statement of Financial Affairs and a Summary
of Assets and Liabilities, forms designed to elicit information regarding the debtor’s assets, liabilities,
contractual relationships, pending litigation, and other matters as of the petition date. See Fed. R. Bankr.
P. 1007(b). Reference should be made to the applicable court website at the time of filing to ensure
compliance with other filing requirements (see 11 USC 521). A Chapter 7 filing may be made by an in-
dividual or a corporate entity. In the event of a corporate filing, though it is generally the case that the
corporation ceases its operations, a trustee may continue the business for a limited purpose where to do
so would benefit creditors of the estate (see 11 USC 726). Distribution of net proceeds, net assets less
exempt property, administrative costs of the estate and assets distributed to secured creditors is governed
by 11 USC 726.

Chapter 9 — Adjustment of Debts of a Municipality

Chapter 9 bankruptcy is reserved for municipalities. Section 101 of the Bankruptcy Code defines munic-
ipality as a political subdivision or public agency or instrumentality of a state. Chapter 9 is not available
to the states themselves. Rarely used until recently, Chapter 9 is being used more frequently — most re-
cently by the municipalities of Detroit, Michigan; Harrisburg, Pennsylvania; Vallejo, California; and
others. The stated goal of Chapter 9 is much the same as other chapters — to afford the debtor, in this
case a municipality, some protection from creditors while it develops a plan to deal with its financial dif-
ficulties. A few important distinctions in a Chapter 9 are that only the debtor may propose a plan (there
can be no competing plan by creditors or parties in interest) and there is no provision for the liquidation
of assets and disposal of proceeds — Chapter 9 only contemplates a reorganization. For this latter rea-
son, action in a Chapter 9 case generally centers around the debt of the municipality and efforts to re-
work or reduce that debt either through extended maturities, refinancing, or restructured obligations.
Municipalities may enlist the assistance of professionals in the ordinary course and without separate ap-
plication to the court. Professionals are paid as an administrative expense of the case. An overview of
Chapter 9 and its provisions can be found on the U.S. Court website.

See www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter9.aspx.

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