Bankruptcy Introduction:

Bankruptcy may be right for you if…

Chapter 7 for Individual Consumer Debtors

Informally called “straight bankruptcy,” Chapter 7, a liquidation proceeding, is the most common form of Bankruptcy filed in the U.S. today. This form of bankruptcy may be right for you if you meet the above criteria.

The Chapter 7 Process - What should I Expect?

First, an initial consultation is of utmost importance in order to evaluate your financial situation. Your debts, income, expenses and personal property will be assessed in order to ascertain whether a Chapter 7 filing is the best course of legal action for you. Once we obtain all of your relevant information and documentation, we can start preparing your Bankruptcy Petition and Schedules and subsequently file them with the appropriate court. Shortly thereafter, a bankruptcy trustee will be appointed, to whom you will turn over all non-exempt property (if any such property exists) and who will then convert it to cash for distribution among the creditors. You are entitled to keep a limited amount of property which qualifies as exempt and is protected.

The Trustee is responsible for selling or “liquidating” those assets that do not fall within the allotted property exemptions, in order to repay your creditors.

From the moment your bankruptcy petitions, schedules and related documents are filed with the court, you are granted an automatic stay, which in essence is protection under 11 U.S.C. § 362 of the Bankruptcy Code. From that moment and through the duration of your bankruptcy proceeding, it is strictly prohibited for creditors to harass you. In addition, during this period, your wages cannot be garnished (any current garnishments are lifted) and mortgage foreclosures are halted.

Roughly 30-40 days after your Bankruptcy filing, you will attend a Section 341(a) Meeting of Creditors with the Bankruptcy Trustee. This meeting is brief and the trustee will ask you several questions on the record.

Usually 60 days after your Section 341(a) Meeting of Creditors you will receive a discharge of indebtedness in the form of a discharge notice for all dischargeable debts, releasing you from personal liability for those debts.

Chapter 11 for Corporate Reorganizations

Referred to as “Reorganization,” Chapter 11 is normally the chapter of bankruptcy under which commercial enterprises proceed. This chapter of bankruptcy allows the business to continue its operations while repaying creditors concurrently through a court-approved plan of reorganization. Some individuals may qualify for a Chapter 11 as well.

Chapter 11 is reorganization, as opposed to liquidation. Debtors may “emerge” from a Chapter 11 bankruptcy within a few months or within several years, depending on the size and complexity of the bankruptcy. The Bankruptcy Code accomplishes this objective through the use of a bankruptcy plan. With some exceptions, the plan may be proposed by any party in interest. Interested creditors then vote for a plan. Upon its confirmation, the plan becomes binding and identifies the treatment of debts and operations of the business for the duration of the plan.

Debtors in Chapter 11 have the exclusive right to propose a plan of reorganization for a period of time (in most cases 120 days). After that time has elapsed, creditors may also propose plans. Plans must satisfy a number of criteria in order to be “confirmed” by the bankruptcy court. Among other things, creditors may vote to approve the plan of reorganization. If a plan cannot be confirmed, the court may either convert the case to a liquidation under Chapter 7, or, if in the best interests of the creditors and the estate, the case may be dismissed resulting in a return to the status quo before bankruptcy. If the case is dismissed, creditors will look for an alternative to bankruptcy law in order to satisfy their claims.

As with other forms of bankruptcy, petitions filed under Chapter 11 invoke the automatic stay of § 362. The automatic stay requires all creditors to cease collection attempts, and makes post-petition debt collection void. Under some circumstances, creditors or the United States Trustee can ask the court to appoint a trustee to manage the debtor’s business. This situation arises when there is some wrongdoing or gross mismanagement on the part of existing management.

Chapter 13 for Adjustment of Debts

Also known as “Adjustment of Debts of an Individual with Regular Annual Income,” Chapter 13 provides debt relief for individuals or consumers. Chapter 13 differs from Chapter 7 in the respect that it enables you to keep valuable assets, like a house, while making payments to creditors (through the trustee) based on your anticipated income over the life of the plan (usually three to five years). At a confirmation hearing, the court either approves or disapproves the plan.

Filing under Chapter 13 of the Bankruptcy Code affords you the opportunity to repay a percentage or 100% of your debts under better terms ( i.e. lower or no interest). In essence, a Chapter 13 Bankruptcy involves the restructuring of debts which allows you to use whatever disposable income you may have in the future to pay off your creditors. Filing Chapter 13 Bankruptcy is therefore appropriate for a debtor who has a regular income, and thus can afford to request such adjustments or reductions.

The United States Bankruptcy Code gives you a ceiling of 5 years, within which your creditors must be paid back. While your attorney will safeguard your interests, the entire process is carried out under the supervision of the courts.

While debtors are allowed to keep all of their property, the court approves a new interest-free plan for repayment. A written plan is created giving details of all the scheduled payments that will occur, and the duration of the same. The repayment generally begins within 30-45 days after the case is filed. Usually, monthly payments are made directly to the appointed trustee who then disburses the money to the creditors as per the plan. Also, as per the law, the creditors must strictly adhere to the repayment plan approved by the court and are in fact prohibited from collecting on any claims from the debtor.

Another advantage of a Chapter 13 filing is that a repayment plan can be confirmed even if creditors are not in accordance with the terms of the plan. The creditors may object, but the court decides if such objections are merit-based.