Navigating You Through Your Bankruptcy Issues
Bankruptcy Chapter 7 and Chapter 13. What are they? How do they work?
Learn about bankruptcy basics. Chapter 7. Chapter 13. Business Bankruptcy. Chapter 11.
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How Chapter 7 Works In a Nutshell:
Chapter 7 bankruptcy starts with a thorough review and consultation regarding your debt situation. You make a list of your debts, your assets (your home, cars, personal items, etc.) and provide information regarding your income.
You will have to qualify by taking the "means test". If you make too much income you can still file a Chapter 13 case. If you qualify for Chapter 7 bankruptcy and decide to go forward, a petition is prepared which discloses all of your financial information in an easy to read format. You will have to do some "credit counseling" before you can file the case. After that, that petition gets filed with the Bankruptcy Court. At this point, your creditors are generally barred from taking any further collection action without permission from the court.
Your case gets assigned to a Bankruptcy Trustee who reviews your bankruptcy petition and schedules. You attend a meeting with the Trustee which your attorney attends also. The meeting is to review the bankruptcy petition. If the Trustee is satisfied that you have no assets to administer and your bankruptcy petition is in order he will file a "no asset report".
After the meeting with the Trustee you will complete the second part of the "credit counseling" which is about debtor education. Sixty days after the meeting with the Trustee, your case should be scheduled for discharge which you will receive by mail from the court.
If you have secured debts like a car or house loan, you will have to decide whether you will keep them after the bankruptcy. If you keep them you have to pay for them and enter into a reaffirmation agreement with the lender. That agreement usually states that the debt survives bankruptcy and must be paid.
Sometimes issues of dischargeability of your debts arise. Certain debts cannot be discharged, such as student loans. It is important to fully disclose all of your debts to your attorney, so that you can get the proper advice.
How Chapter 13 Works In a Nutshell:
Chapter 13 bankruptcy starts with a thorough review and consultation regarding your debt situation. You make a list of your debts, your assets (your home, cars, personal items, etc.) and provide information regarding your income.
Some people who make too much money to qualify for Chapter 7 are required to file Chapter 13 if they want bankruptcy relief. Thus, a thorough examination of all of your income is important. If your monthly expenses exceed your income, you could be disqualified from Chapter 13 because your income is too low. Careful analysis is the key to a successful Chapter 13.
A typical use of Chapter 13 might be a person who is facing foreclosure. Perhaps they were unemployed for a time and got behind on the mortgage. But now they are back to work and have enough money to pay the mortgage as it comes due. If they have more income than expenses, then that "disposable income" can be committed to a Chapter 13 Plan. The Plan can pay back the mortgage arrears and keep you in your home.
Once you have all of your information ready, a Chapter 13 petition is prepared. As with all bankruptcy cases, you will have to complete "credit counseling" before you can file your case. That is usually a short one hour or less process after which you get a certificate. When ready, you case can be filed and most creditor collection actions must cease.
Your case gets assigned to a Chapter 13 Trustee who reviews your plan and bankruptcy documents. Their job is to make sure your plan complies with the Bankruptcy Code and is a feasible plan for repayment. If the Trustee agrees that your case is viable, then it goes before the court for confirmation. Once confirmed you continue to make your payments to the Chapter 13 Trustee until the end of the plan.
Chapter 13 is both simple to describe yet complex to execute. Problems can arise when creditors don't receive their monthly payments or you fail to pay the Chapter 13 Trustee. Having the legal advice of an attorney is very important.
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Business Bankruptcy and more. . .
Small Business Chapter 7 In a Nutshell:
A Small Business Chapter 7 Bankruptcy case can be an orderly and efficient method for business owners to wind down their company. If the business owners decide to file a Chapter 7 Bankruptcy case, a petition is prepared that fully discloses all assets and liabilities of the company.
A Chapter 7 Trustee is appointed to the case and examines the bankruptcy petition and schedules to make sure they comply with the bankruptcy code and also determine if there are any assets available for creditors. If assets are available, the Chapter 7 Trustee will liquidate them and collect the proceeds to distribute to creditors. If there are no assets to administer, the case will be administratively closed. Businesses to not get a discharge as opposed to individuals who do. However, the company will be terminated and effectively cease existence.
Small Business Chapter 11 In a Nutshell:
The Bankruptcy Code provides several possible solutions for a Small Business in a Chapter 11 Bankruptcy case. Typically, the company is trying to stay in business, but other times the company is looking to have an orderly wind down. Chapter 11 Bankruptcy allows a business to reorganize or wind down while under court supervision and protection from creditors.
Chapter 11 can take many forms, but essentially the company management proposes and executes a Chapter 11 Plan which may be used to compromise or even eliminate certain classes of debt. The plan can also be used to reject leases and other executory contracts that are not favorable to the debtor.
In most cases, a Chapter 11 debtor is attempting to continue in business. In a "liquidating Chapter 11" whereby the debtor sells assets in an orderly manner, attempting to maximize their value and then uses the proceeds to pay creditors.
One common use of a Small Business Chapter 11 is dealing with the IRS. Often, a small business is forced to forgo payment of necessary withholding taxes and other taxing authority obligations in order to survive a severe cash flow crunch. Chapter 11 is an excellent tool for solving this problem and dealing successfully with tax issues.
Chapter 11 is very complex and requires full disclosure and complete cooperation of the company owners. However, it can be very effective in solving short term business problems in an otherwise viable company or winding down a company with valuable assets.
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