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In a Chapter 7 bankruptcy, you file a petition asking the court to discharge your debts. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors. If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a Chapter 7 case probably will not be the right choice for you. That is because Chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.
Although some of your debts will be discharged as a result of filing a Chapter 7 bankruptcy, there are certain debts which you must continue to pay so that you have the right to keep the collateral which secures those debts. You must make regular payments on these debts, each and every month, as the payments become due, and send these payments directly to the creditor. The creditor might not send you a bill or book but, if you do not keep the payments up-to-date, the creditor can take steps to take your property away.
Certain debts are not eliminated by bankruptcy. There are too many types of such debts to list them all here, but some of the most common include student loans, most taxes, Alimony and/or Child Support and some other divorce related debts.
When you “surrender” property back to a creditor in a bankruptcy case, this simply means that you don?t have to pay that creditor any more money. It does not mean that the property is automatically taken out of your name. In many situations, when you “surrender” property in a bankruptcy case, the creditor will promptly foreclose or repossess the property. However, there is no guarantee that the creditor will do so. Until something happens to get the property out of your name, you will still owe any debts?such as real or personal property taxes that come due with respect to the property?because the property is still in your name. Therefore, if the creditor does not quickly foreclose or repossess upon the property that you surrender, you may want to contact the creditor to find out why. Of course if a creditor never takes action to assert its rights, you may continue to use the property.
Any tax refunds you are entitled to as of the date the bankruptcy case is filed are considered “property of the estate”. The trustee assigned to the case has the right to demand that the tax refunds be paid over to him or her for distribution to creditors. If you are required to pay over your tax refund and you do not do so, you could be denied the benefits of your bankruptcy case.
It is your responsibility to notify your attorney if, at any time during the case, you realize you have a claim or lawsuit against any other person or company (1) which was not listed in your schedules and (2) the basis for which arose before the filing of the bankruptcy case. The failure to notify your attorney could result in that claim being lost and the lawsuit arising from the claim, if any, being dismissed. However, without further written agreement, notifying your attorney does not mean that your attorney will represent you regarding any such claim or lawsuit.
In a Chapter 13 Bankruptcy, a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. A person who files under Chapter 13 is called a debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. If the court approves the debtor’s plan, most creditors are prohibited from collecting their claims from the debtor during the course of the case. The debtor must make their payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to the creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor’s nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor’s debts, while in most Chapter 13 cases a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible considering the debtor?s circumstances. As a practical matter, under Chapter 7 the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13 the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a Chapter 13 discharge, which is broader than a Chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under Chapter 7. However, a Chapter 13 normally lasts much longer than a Chapter 7 case and is usually more expensive for the debtor.
Chapter 13 is usually preferable for a person who – (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a Chapter 7 case, (3) is not eligible for a discharge under Chapter 7, (4) has one or more substantial debts that are dischargeable under Chapter 13 but not under Chapter 7, or (5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
In a Chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for student loans, alimony or child support, may be paid under a Chapter 13 plan.
No, while priority debts, such as debts for alimony, maintenance and support and debts for taxes, and fully secured debts must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan.
Usually all of the disposable income of the debtor and the debtor’s spouse for a three-year period must be paid into the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents.
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor’s plan is filed with the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, payment can be made through a Voluntary Wage Deduction.
A Chapter 13 plan must last for three years, unless all debts can be paid off in full in less time. However, a Chapter 13 plan can last for as long as five years, if necessary.
No. To become effective, a Chapter 13 plan must be approved by the court, not by the creditors.
There are four methods of dealing with secured creditors under Chapter 13: (1) the creditor may accept the debtor?s proposed plan, (2) the creditor may retain its lien and be paid the full amount of its secured claim under the plan (3) the debtor may surrender the collateral to the creditor, or (4) the creditor may be paid or dealt with outside the plan. It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim.
If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor.
Any natural person may file under Chapter 13 if the person – (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $307,675, (4) has secured debts of less than $922,975, (5) is not a stockbroker or a commodity broker, and (6) has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds.
A husband and wife may file jointly under Chapter 13 if each of them meets the requirements listed in the last answer, except that only one of them need have regular income and their combined debts must meet the debt limitations.
If both spouses are liable for any significant debts, they should file jointly under Chapter 13, if each of them has income. Also, if both of them have regular income, they should file jointly.
A pending Chapter 7 case may be converted to Chapter 13 at any time at the request of the debtor, if the case has not been previously converted to Chapter 7 from Chapter 13.
There is a $274.00 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the Chapter 13 Trustee assesses a fee of 9 or 10 percent on all payments made under the plan. These fees are in addition to the fee charged by the debtor?s attorney.
Usually not. Under Chapter 13, creditors are usually paid out of the debtor’s income and not from the debtor’s property.
The filing of a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, other actions by creditors against the debtor or the debtor’s property.
It may worsen it, at least temporarily. However, if most of a person’s debts are ultimately paid off under a Chapter 13 plan, that fact may be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a Chapter 13 case may be similar to that of a Chapter 7 case.
When a Chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by the credit reporting agencies. However, newspapers do not usually publish the names of persons who file under Chapter 13
In some cases, yes. Many courts require a debtor’s employer to make payments to the Chapter 13 trustee on the debtor’s behalf or the debtor may choose to pay by Voluntary Wage Deduction Order.
The court may confirm a Chapter 13 plan if: (1) the plan complies with the legal requirements of Chapter 13, (2) all required fees, charges and deposits have been paid, (3) all priority claims will be paid in full under the plan, (4) the plan was proposed in good faith, (5) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under Chapter 7, (6) it appears that the debtor will be able to make the required payments and comply with the plan, and (7) each secured creditor has been dealt with in the appropriate manner.
Most debtors have to appear in court at least once for a hearing called the meeting of creditors. The meeting of creditors is usually held about a month after the case is filed. The debtor’s testimony should not be lengthy. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.
If the court will not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the case to Chapter 7 or dismiss the case.
Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date is set for the meeting of creditors in order for their claims to be allowed.
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor’s inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some debts require approval in advance by the Chapter 13 trustee.
The debtor should immediately notify the bankruptcy court and the Chapter 13 trustee in writing of the new address. Most communications in a Chapter 13 case are by mail, and if the debtor fails to receive an order of the court or a notice from the Chapter 13 trustee because of an incorrect address, the case may be dismissed.
The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the court may dismiss the case and the Automatic Stay will no longer protect the debtor.
A debtor who is unable to complete the Chapter 13 payments has three options: (1) dismiss the Chapter 13 case, (2) convert the Chapter 13 case to Chapter 7, or (3) if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable, close the case and obtain a partial Chapter 13 discharge.
The debtor’s attorney performs the following functions in a typical Chapter 13 case: (1) Examining the debtor’s financial situation and determining whether Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed, (2) assisting the debtor in the preparation of a budget, (3) examining the liens or security interests of secured creditors to ascertain their validity or avoidabliity, and taking the legal steps necessary to protect the debtor’s interest in such matters, (4) devising and implementing methods of dealing with secured creditors, (5) assisting the debtor in devising a Chapter 13 plan that meets the needs of the debtor and is acceptable to the court, (6) preparing the necessary pleadings and Chapter 13 forms, (7) filing the Chapter 13 forms and pleadings with the court and paying, or providing for the payment of, the filing fee, (8) attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case, (9) assisting the debtor in obtaining court approval of a Chapter 13 plan, (10) checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon, (11) assisting the debtor in overcoming any legal obstacles that may arise during the course of the case, (12) assisting the debtor in obtaining a discharge upon the completion or termination of the plan.
The fee charged by an attorney for representing a debtor in a Chapter 13 case must be reviewed and approved the bankruptcy court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case, and whether it is paid to the attorney directly by the debtor or by the Chapter 13 trustee. The court will approve only a fee that it finds to be reasonable.
A Chapter 11 bankruptcy permits a person or business to reorganize while obtaining protection from its creditors. Chapter 11 of the Bankruptcy Code is entitled “Reorganization.” The Bankruptcy Code is the name given to that portion of the federal laws that deal with bankruptcy.
Legally, anyone except a governmental agency, an estate, a non-business trust, a stockbroker, a commodity broker, an insurance company, a bank, or an SBA-licensed small business investment company may file under Chapter 11. An individual may not file under Chapter 11 if he or she has had another bankruptcy case dismissed upon certain grounds within the last 180 days. As a practical matter, Chapter 11 is available to virtually any business or person able to afford the expenses of the case.
No. There are no financial or insolvency requirements for filing a voluntary Chapter 11 case other than the good faith requirement that the case be filed primarily for purposes of reorganization.
A debtor is a person or business concerning whom a case under the Bankruptcy Code has been commenced. A person or business who files a Chapter 11 case is referred to as a debtor. A debtor who qualifies may elect to be treated as a qualifying small business debtor in a Chapter 11 case.
To qualify as a small business debtor, a debtor must be engaged in a commercial or business activity (other than one whose primary activity is the business of owning or managing real property and activities incidental thereto) and the total amount of the debtor’s non-contingent liquidated secured and unsecured debts must not exceed $2,000,000 when the case is filed.
A QUALIFYING SMALL BUSINESS DEBTOR?
By filing a written notice of the debtor’s election to be treated as a qualifying small business debtor with the bankruptcy court within 60 days after the case is filed. The election is usually made by checking the appropriate box on the petition.
AS A QUALIFYING SMALL BUSINESS DEBTOR?
Being treated as a qualifying small business debtor expedites the handling of a Chapter 11 case by dispensing with the necessity of a creditor’s committee, by shortening the period for filing plans, and by liberalizing the procedures for obtaining acceptance of a plan.
No. A business filing under Chapter 11 may be very large, very small, or anywhere in between. Under Chapter 11, a business may be a sole proprietorship, a partnership, a limited liability company or a corporation any size. Only those entities listed in the answer to question 2 above are not eligible to file under Chapter 11.
The Chapter 11 filing fee is $1,039, which must be paid to the clerk of the bankruptcy court when the case is filed. In addition, there is a quarterly fee payable to the U.S. Trustee that is based on the amount disbursed during the quarter by the debtor during the Chapter 11 case until such time as a plan is confirmed. The amount of the quarterly fee varies from $250.00 to $10,000.00 per quarter, depending on the amount disbursed.
The United States Trustee is an employee of the United States Department of Justice and serves independently of the bankruptcy court. The function of the United States Trustee in a Chapter 11 case is to monitor the case, appoint one or more creditors’ committees, call and preside at meetings of creditors, appoint a trustee in the case if ordered to do so by the bankruptcy court, and collect the quarterly fee.
The amount charged by an attorney for handling a Chapter 11 case for a small business debtor varies greatly depending on such matters as the size of the business, the type and extent of relief needed by the debtor, the attitude of the debtor’s creditors, the type of reorganization needed or contemplated by the debtor, and whether the owners of the business are in agreement or disagreement as to how the business should be reorganized. Unless the case is a simple one, most attorneys charge on an hourly basis and require a retainer to be paid in advance. The total fee charged for handling a small business Chapter 11 case may vary from $2,500 or less for a simple case to several times that amount for a complex case. All fees charged or collected by an attorney in connection with a Chapter 11 case, whether prior to or after the case is filed, must be approved by the bankruptcy court as being reasonable in amount.
The filing of a Chapter 11 case automatically stays all foreclosures, collection actions, civil litigation, and creditor action of any kind against the debtor or the debtor’s property. The only significant proceedings not stayed by the filing of a Chapter 11 case are criminal proceedings against the debtor, divorce-related proceedings, and proceedings by governmental agencies to enforce police or regulatory powers.
If the debtor’s business is reorganized, it may continue to function either in its present form or in a revised form, and its present creditors will be permitted to satisfy their claims only to the extent provided in the debtor’s plan of reorganization.
A Chapter 11 case must be broken down into two phases: the pre-confirmation phase and the post-confirmation phase. The first phase, which is the phase prior to the confirmation of a plan, normally lasts from six to twelve months, although the time may vary. The second phase, which is the phase where the confirmed plan is implemented and carried out by the debtor, normally lasts from three to five years.
In a Chapter 11 case the debtor receives a discharge when a plan is confirmed by the court. The order of the court that confirms the plan also contains the debtor’s Chapter 11 discharge. A discharge is a court order relieving the debtor from liability for certain debts. A debt that is discharged is a debt for which the debtor is no longer liable, except as provided in the Chapter 11 plan.
The debts discharged in a Chapter 11 case depend on whether the debtor is an individual (a natural person) or a non-individual (a corporation, partnership, etc.). The discharge received by an individual debtor in a Chapter 11 case discharges the debtor from all pre-confirmation debts except those that would not be dischargeable in a Chapter 7 case filed by the same debtor. The discharge received by a non-individual debtor in a Chapter 11 case depends on whether the plan confirmed is a plan of reorganization or a plan of liquidation.
Yes. As long as the order of confirmation is not revoked by the court (which seldom happens), the discharge received by the debtor in the order of confirmation is valid even if the debtor later fails to fulfill its obligations under the Chapter 11 plan.
A Chapter 11 case is filed with the clerk of the bankruptcy court in the district where the debtor either resides, has its principal place of business, or has its principal assets.
Generally, only the creditors, owners, and employees of a small business debtor are aware that the debtor has filed a Chapter 11 case.
Most Chapter 11 debtors receive a moratorium on the payment of most of their general unsecured debts for the period between the filing of the case and the confirmation of a plan. This period usually lasts for six to twelve months. During this period, however, it may be necessary to pay secured creditors and creditors whose property, goods, or services are needed to continue the debtor’s business.
Cash collateral is cash or property that is easily converted to cash. Property such as bank accounts, checks, securities, and other cash equivalents constitutes cash collateral. Because it is easily disposed of, the use or sale of cash collateral is subject to strict rules in Chapter 11 cases.
Unless a trustee is appointed, the debtor may continue to operate its business during a Chapter 11 case as debtor in possession. In operating its business during a Chapter 11 case, the debtor, as a debtor in possession, must abide by the requirements of Chapter 11 and the orders of the bankruptcy court.
There are two grounds for the appointment of a trustee in a Chapter 11 case: a trustee may be appoints either for cause or if the appointment would be in the best interests of creditors. Cause for the appointment of trustee includes fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or during the case. A trustee is not appointed in most small business Chapter 11 cases.
If appointed, the trustee assumes most of the management functions of the debtor’s business and takes control of the debtor’s property. The trustee may also assume control over many aspects of the debtor’s Chapter 11 case.
For purposes of use, sale, or lease during a Chapter 11 case, a debtor’s property is divided into two categories: cash collateral and all other property. Until a plan is confirmed, the debtor, as a debtor in possession, may not use, sell, or lease cash collateral unless each creditor secured by the cash collateral consents to the proposed use, sale, or lease, or unless the court approves the proposed use, sale, or lease. Unless the court orders otherwise, the debtor may use, sell, or lease any of its property except cash collateral in the ordinary course of business during the case without prior notice to creditors or court approval. The debtor may use, sell, or lease property other than cash collateral outside the ordinary course of business during the case only after notice to any affected creditors and a court hearing.
Yes. Unless the court orders otherwise, the debtor, as a debtor in possession, may obtain unsecured credit and incur unsecured debt in the ordinary course of business during a Chapter 11 case without court approval. Further, the unsecured credit or debt so obtained or incurred is payable as an administrative expense in the case, which means that those creditors get paid ahead of all other unsecured creditors. Court approval is required prior to obtaining or incurring any other type of credit or debt during the case. Thus, secured credit or unsecured credit not in the ordinary course of business may be obtained during the case only with the prior approval of the bankruptcy court.
Yes. Under Chapter 11, the debtor, as a debtor in possession, may, at its option and without the consent of the other party, reject, assume, or assign most contracts or leases under which the debtor is obligated.
It is a document prepared by the proponent of a Chapter 11 plan that discloses financial and other information about the debtor and the proposed plan to the debtor’s creditors.
It is a written document that states the terms of how the debtor will deal with its creditors and, if necessary, interest holders.
Much depends on whether a creditor is fully secured or under-secured. The claim of a fully secured creditor must be paid in full in cash, and if deferred cash payments are made on the claim, interest must be paid to the creditor for not receiving its cash immediately. An under-secured creditor may elect to have its claim treated as being fully secured, and if such an election is made the claim must be paid in full in cash, but if deferred cash payments are made, interest does not usually have to be paid on the claim.
A fully secured creditor is the holder of a claim that is secured by properly of a value that equals or exceeds the amount of the claim. An under-secured creditor is the holder of a claim that is secured by property of a value that is less than the amount of the claim.
Priority claims must be paid in full in cash under a Chapter 11 plan, unless a creditor agrees otherwise. Further, all priority claims except tax claims must be paid when the plan is confirmed or shortly thereafter, unless a particular creditor agrees to accept payments under the plan. Tax claims may be paid in deferred cash payments with interest over a period not exceeding six years from the date of assessment of the tax. An unsecured creditor with a non-priority claim must be paid at least as much as the creditor would have received had the debtor filed under Chapter 7, and the payments need not be in cash. Non-priority claims may be paid in cash, property, or securities of the debtor or the successor to the debtor under the plan.
A priority unsecured claim is an unsecured claim that is given priority of payment under the Bankruptcy Code. Priority unsecured claims include the following types of claims: the administrative expenses of the Chapter 11 case, wage claims of up to $4,000.00 per employee, wage benefit claims of employees up to certain limits, consumer deposit claims of up to $1,800.00 each, most divorce-related claims, and unsecured tax claims. Administrative expenses include the fees of debtor’s attorney and unsecured debts incurred in the ordinary course of operating the debtor’s business during the case. A non-priority unsecured claim is a general unsecured claim incurred against the debtor prior to the filing of the Chapter 11 case.
Yes, but only under certain conditions.
If any of the conditions described in the answer to the previous question occur entitling a party other than the debtor to file a Chapter 11 plan, any party to the case may file a plan, including a creditor, an interest holder, or a creditors’ committee. The United States Trustee may not file a plan.
It is a committee appointed by the U.S. Trustee that represents the interests of creditors in the case. A creditor’s committee must be appointed in a Chapter 11 case unless the debtor elects to be treated as a qualifying small business in the case and requests that a creditors’ committee not be appointed.
Voting on a plan begins after the court approves or conditionally approves a disclosure statement prepared by the party proposing the plan. Each eligible creditor is mailed a ballot for voting on the plan. The ballot is accompanied by a copy of the disclosure statement and a copy or summary of the proposed plan. The court sets a deadline for voting on the plan, and a creditor’s ballot must be filed with the court prior to the voting deadline in order to be counted.
After a Chapter 11 plan is confirmed by the court, the plan must be implemented and carried out, either by the debtor or by the successor to the debtor under the plan. And of course, the claims of creditors must be paid in the manner specified in the plan.
If the court decides not to confirm a Chapter 11 plan, it will usually permit the party proposing the plan to modify the plan so that it can be confirmed. If the court refuses to confirm any plan, the Chapter 11 case must either be dismissed or converted to Chapter 7.
The plan may be amended so that it can be complied with, if sufficient grounds exist for such an amendment. Otherwise, the Chapter 11 case may be dismissed or converted to Chapter 7. If the debtor, or the successor to the debtor under the plan, fails to carry out its obligations under the plan, creditors may sue, or foreclose on the property of, the debtor or its successor either in the bankruptcy court or in other courts.
When all of the provisions and requirements of a Chapter 11 plan have been fulfilled or carried out, the plan is said to have been consummated and a final report and accounting must be filed, and the case will be closed by the court.