Certified Revenue Cycle Representative (CRCR) Practice Exam

What occurs in a Chapter 7 Straight Bankruptcy filing?

1. The court liquidates nonexempt property and pays creditors

2. The court liquidates property and pays largest claims first

3. The court vacates claims against a debtor

4. The court establishes a payment schedule for creditors

The correct answer is: The court liquidates nonexempt property and pays creditors

In a Chapter 7 Straight Bankruptcy filing, the court is responsible for liquidating nonexempt property owned by the debtor and using the proceeds to pay creditors. This type of bankruptcy, often referred to as "liquidation bankruptcy," allows individuals to discharge most of their unsecured debts, providing them a fresh start financially. The process begins with the debtor’s nonexempt assets being identified and sold off by a court-appointed trustee. The funds generated from this liquidation are then distributed to creditors in accordance with the legal priority of their claims. While the other options mention aspects of how debt and claims are handled, they do not accurately describe the typical process seen in Chapter 7 bankruptcy. For instance, vacating claims against a debtor or establishing a payment schedule does not align with the liquidation principle underpinning Chapter 7, which focuses more on the sale of assets rather than creating structured repayment plans. Similarly, the distribution of funds to creditors occurs based on priority rules established by law, rather than simply addressing the largest claims first in a manner that implies an arbitrary distribution.