The most common bankruptcy filed is a chapter 7. The protection of the bankruptcy process allows for the elimination of most if not all debts, and will stop foreclosure processes, allow a debtor to negotiate with secured lenders, allow payment of past support payments throughout a three or five year span of time, force the state to reinstate a drivers license for failure to pay civil penalties, etc. Most individuals who file a bankruptcy are permitted to retain all of their assets while at the same time discharging all their debts. A bankruptcy is not always the best option and one of our attorneys will explain alternatives to the filing of bankruptcy during the initial consultation.
A chapter 7 bankruptcy case does not involve a plan of repayment as opposed to a chapter 13 case. Instead, the bankruptcy trustee has the option/right to gather and sell the debtor’s nonexempt assets to pay back holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee may liquidate the debtor’s remaining assets. Potential debtors should be aware that filing of a petition under chapter 7 may result in the loss of property.
A discharge releases the debtors liability for most or all debts and adds protection from the owed creditors from taking any collection actions against the debtor. Because a chapter 7 discharge is subject to many exceptions, debtors should consult one of our competent legal attorneys before filing to discuss the scope of the discharge. Generally, excluding cases that are dismissed or converted, individual debtors receive a discharge in more than 99 percent of chapter 7 cases. In most cases, unless a party in interest files a complaint objecting to the discharge or a motion to extend the time to object, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days from the 341 meeting (meeting of creditors.) Fed. R. Bankr. P. 4004(c).
To qualify for relief under chapter 7 of the Bankruptcy Code, the debtor may be an individual, a partnership, or a corporation or other business entity. 11 U.S.C. SS 101(41), 109(b). Subject to the means test ( a basic assessment for Ch 7 eligibility), relief is available under chapter 7 irrespective of the amount of the debtor’s debts or whether the debtor is solvent or insolvent. However, if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court, or the debtor voluntarily dismissed the previous case after creditors sought relief from the bankruptcy court to recover property upon which they hold liens, an individual cannot file under chapter 7 or any other chapter. 11 U.S.C SS 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 7 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. SS 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.
One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a “fresh start.” The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. 11 U.S.C. § 727(a)(1). Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not definite, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.
The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership or an individual who does not qualify for either a chapter 7 or chapter 13 bankruptcy. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.) Generally, an individual who does not qualify for a chapter 7 bankruptcy due to income constraints or do not qualify for a chapter 13 bankruptcy, due to constraints, will be forced to file a chapter 11 bankruptcy.
Integrity Law Group, PLLC represents both business and individual debtors in Chapter 11 proceedings, providing pre-filing counseling and planning, general representation in the Chapter 11 case, and the full range of related post-petition services. We believe that a successful Chapter 11 requires a partnership between the client, its legal professionals, and its financial professionals. We work closely with this team to reorganize the debtor, or to satisfactorily resolve the Chapter
11. When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11.
The process involved with Chapter 11 business bankruptcy is far more complicated than either Chapter 7 or Chapter 13 personal bankruptcies. In fact, through our firm your business will have to be involved in the process generally for five years and we will have to file statements with the US Trustees Office. We will also have to make quarterly payments to the US Trustees offices.
Chapter 11 retains many of the features present in all, or most, bankruptcy proceedings in the U.S. It provides additional tools for debtors as well. Most importantly, 11 U.S.C. § 1108 empowers the trustee to operate the debtor’s business. In Chapter 11, unless a separate trustee is appointed for cause, the debtor, as debtor in possession, acts as trustee of the business. Chapter 11 affords the debtor in possession a number of mechanisms to restructure its business. A debtor in possession can acquire financing and loans on favorable terms by giving new lenders first priority on the business’ earnings. The court may also permit the debtor in possession to reject and cancel contracts. Debtors are also protected from other litigation against the business through the imposition of an automatic stay. While the automatic stay is in place, most litigation against the debtor is stayed, or put on hold, until it can be resolved in bankruptcy court, or resumed in its original venue.
If the business’s debts exceed its assets, the bankruptcy restructuring results in the company’s owners being left with nothing; instead, the owners’ rights and interests are ended and the company’s creditors are left with ownership of the newly reorganized company. All creditors are entitled to be heard by the court. The court is ultimately responsible for determining whether the proposed plan of reorganization complies with the bankruptcy law.
The Chapter 11 usually results in reorganization of the debtor’s business or personal assets and debts, but can also be used as a mechanism for 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. We will walk you through the process step by step and work closely with your existing professional accountants, book keepers, in house counsel, or other individuals that hold an interest in your business.
Chapter 13 offers individuals a number of advantages versus chapter 7. Most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may compensate for delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that are due during the chapter 13 plan in a timely manner. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the term of the chapter 13 plan; doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection plan.
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
Similar to Ch 7, an individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 U.S.C. §§ 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.
Links for bankruptcy.
Federal rules of bankruptcy procedure- http://www.law.cornell.edu/rules/frbp/
Bankruptcy filing requirements- http://www.wawb.uscourts.gov/view.htm?f=70&id=691&v=5
Filing fees- http://www.wawb.uscourts.gov/view.htm?f=6&id=696&v=5
Bankruptcy Home stead Exemption- http://apps.leg.wa.gov/rcw/default.aspx?cite=6.13