Upon the filing of a voluntary petition for relief under chapter 11 or, in an involuntary case, the entry of an order for such relief, the debtor automatically assumes an additional identity as the "debtor in possession." The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under chapter 11, without the appointment of a case trustee.
Discharging a debt in bankruptcy means that the debt is eliminated or wiped out. However, not all types of debts can be discharged in a bankruptcy proceeding.
The trustee in bankruptcy is a lien creditor and a successor to certain creditors and purchasers. As of the commencement of a bankruptcy case, the trustee or the debtor in possession has the rights and powers of the debtor and may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by certain creditors and bona fide purchasers. This is known as "avoiding" powers. Such powers may be used to undo a transfer of money or property made during a certain period of time prior to the filing of the bankruptcy petition.
A trustee in bankruptcy may avoid certain statutory liens, fraudulent transfers, as well as preferences. The Bankruptcy Code provides that certain transfers made by a debtor within close proximity of bankruptcy are preferential to the recipient and violate the Bankruptcy Code's policy of equal treatment of creditors. The elements of a so-called "preference" or "preferential transfer" are easy for a trustee in bankruptcy to prove. The defenses available to the creditor are limited and the cost to litigate can be high.
Upon successful completion of all payments under a chapter 12 plan, the debtor will receive a "discharge" which extinguishes the debtor's obligation to pay any unsecured debts that were included in the plan, even though they may not have been paid in full. After the discharge has been granted, those creditors whose claims were provided for in full or in part under the plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
