What
is bankruptcy?
Chapter 7 Overview
Chapter 13 Overview
Chapter 11 Overview
A
bankruptcy case: step-by-step
A
final word
Federal
law provides several types of procedures which offer protection and relief
to persons experiencing significant financial difficulty. Contained in the
Bankruptcy Code, the laws offer protection from creditors with the goal of
providing a fresh start to those who seek the use and protection of the
laws.
Although
there are different types of bankruptcy cases, all cases have several things
in common. For example, when any bankruptcy case is filed, an automatic stay
is immediately put into effect. This means that creditors must cease any and
all actions to collect money or property from those who file bankruptcy.
Thus, creditors must terminate the use of letters, telephone calls,
lawsuits, attachments, garnishments, repossessions or foreclosures to
collect a debt.
Bankruptcy laws are designed to allow debtors an opportunity to revise their
financial lives so as to eliminate or reduce future problems, while still
recognizing fairness to creditors.
A
Chapter 7 bankruptcy case is usually filed by those who own limited assets
and whose debts are dischargeable. With certain exceptions, this type of
proceeding results in a discharge, or elimination, of all debts.
Many
debts are dischargeable, such as signature loans, credit card accounts,
bills for services (such as medical bills, etc.), lines of credit, and money
owed from contracts. Debts which are nondischargeable include most income
tax debts, most student loans, credit obtained by fraud, child support and
alimony.
In a
Chapter 7, the debtor is permitted to retain a certain amount of assets,
referred to as an exemption amount. Assets which are subject to a lien, such
as an automobile with an auto loan do not, for practical purposes, count
toward the exemption amount, except to the extent that the value of the
automobile exceeds the balance of the loan. Also, most retirement funds are
not counted toward the exemption.
Debtors
who file a Chapter 7 case may elect to keep property which is subject to a
lien, such as an automobile with an auto loan, but the debtor would be
required to maintain regular payments on the debt. Debtors have the option
of surrendering the encumbered asset and owing nothing further.
A
Chapter 13 is a type of bankruptcy intended for individuals who have a
regular income and are in a position to repay their debts, in part or in
full, over a period of time. Debtors file a Chapter 13, rather than a
Chapter 7, for any number of reasons, including:
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A desire to repay debts;
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A means of repaying debts over a period of time;
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A way to repay debts in an affordable manner and still keep all assets;
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If the debtor is behind on installment payments on a secured debt, such as a
home mortgage or auto loan, a Chapter 13 allows the debtor to catch up on
those past due installments, while preventing the secured creditor from
foreclosing on the home or repossessing the vehicle.
In order
to repay the creditors under a Chapter 13 "plan," the debtor pays monthly
payments to a Court-appointed Trustee. The amount of payment depends on the
debtor's income and expenses as well as the value of the debtor's assets.
A
Chapter 11 case is far and away the most complex of the types of
bankruptcies, and is usually intended for businesses or individuals in
business. This proceeding is designed to allow a business to reorganize its
financial life, with a confirmed and completed Chapter 11 Plan being the
consummation of the case. The debtor must file monthly operating reports
with the Court, and the creditors often form a committee to participate in
the case.
Unlike a
Chapter 13 case, where the plan is usually funded through the debtor's
future income, the debtor's plan in a Chapter 11 often is funded not only
through future income (or sales), but also through liquidation of certain
assets, financing, or a combination of these.
It is
most difficult to adequately summarize Chapter 11 bankruptcy in these few
sentences. A client interested in filing a Chapter 11 can expect an
extended and intense analysis in the law office.
To proceed with the filing of cases, these steps are
generally followed:
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AN INITIAL OFFICE CONFERENCE. The first step is to review
your financial background at a conference in the law office. We ask you to
bring copies of all bills, titles to your vehicles, deeds to your
properties, recent paycheck stubs, and any contracts to which you are a
party.
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A SECOND OFFICE CONFERENCE TO REVIEW AND SIGN THE
COMPLETED PETITION. After we have prepared the petition, we ask you to
return to the office to review all the information contained in the document
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THE CASE IS FILED. Once the case is filed, the automatic
stay provisions of the Bankruptcy Code bar any further action by creditors
to collect any money or property. Those who file a Chapter 13 will be
required to make a monthly plan payment to the court-appointed trustee.
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THE TRUSTEE MEETING. About one month after the case is
filed, a meeting will be held with the court-appointed trustee, where the
trustee asks questions about the information in the petition.
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THE CONFIRMATION HEARING. In Chapter 13 cases, a hearing
is held in the Bankruptcy Court, where the Bankruptcy Judge considers the
confirmation, or approval, of the Chapter 13 plan.
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THE DISCHARGE. An Order of Discharge will be forwarded by
the Court upon the successful completion of proceedings.
The
Bankruptcy Code, Rules, and related cases are often complex. This summary is
intended only to give a general overview as to the subject matter. Please
remember that there are exceptions and additional data to all the
information explained herein, which will be reviewed in detail in the law
office, depending on the individual case.
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