Bankruptcy FAQ's
Overview | Types of Bankruptcy | Prepare to file | After filing
Types of Bankruptcy
What Chapter should I file under?
What is a Chapter 11 Bankruptcy?
What is a Chapter 13 Bankruptcy?
What should I do if I cannot make my Chapter 13 payment?
What is a Chapter 7 Bankruptcy?
What is a Chapter 12 Bankruptcy?
What is a Chapter 9 Bankruptcy?
Can Chapter 7 Bankruptcy help me with taxes that I owe?
What Chapter should I file under?
Your particular circumstances will determine the best Chapter for you to file under. The decision whether to file a bankruptcy and under what Chapter is an extremely important decision and should be made only with competent legal advice from an experienced bankruptcy attorney after a review of all of the relevant facts concerning your case.
What is a Chapter 11 Bankruptcy?
Chapter 11 is the reorganization Chapter available to businesses and individuals that have substantial assets and/or income to restructure and repay their debts. Creditors vote on whether to accept or reject a Plan of reorganization that must be approved by the Court. Our office does not handle Chapter 11 cases, but we would be happy to refer you to another attorney if you believe that you need to proceed in that manner.
What is a Chapter 13 Bankruptcy?
Chapter 13 is the debt repayment Chapter for individuals with regular income whose debts do not exceed $360,475 in unsecured debts and $1,081,400 in secured debts, including individuals who operate businesses as sole proprietorships. It is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future income. Each Chapter 13 debtor proposes a repayment Plan that must be approved by the Court. The amounts set forth in the Plan must be paid to the Chapter 13 Trustee who distributes the funds to your creditors. Many debts that cannot be discharged can still be paid over time in a Chapter 13 Plan. After completion of payments under the Plan, Chapter 13 debtors receive a discharge of most debts.
What should I do if I cannot make my Chapter 13 payment?
First, contact our office by phone and by letter advising of the problem and whether it is temporary or permanent. If it is a temporary problem and the payments can be made up, the debtor should advise us of the time and manner in which the debtor will make up the payments. Significant changes in the debtor’s circumstances may require that the Plan be formally modified. If the problem is permanent and the debtor is no longer able to make payments to the Plan, the Trustee will request that the case be dismissed or converted to another Chapter. The determination of whether to modify, dismiss or convert a case requires the same kind of analysis as is needed for the initial decision whether to file bankruptcy and under what Chapter. Therefore, the debtor should seek counsel from a qualified bankruptcy attorney before attempting to make such a decision. If the debtor delays making a voluntary decision and cannot make the Plan payments, the Court may dismiss the case.
What is a Chapter 7 Bankruptcy?
Chapter 7 is the liquidation Chapter of the Bankruptcy Code. Chapter 7 cases are commonly referred to as “straight” bankruptcy or “liquidation” cases, and may be filed by an individual, corporation, or a partnership. Under Chapter 7, a Trustee is appointed to collect and sell all property that is not exempt and to use any proceeds to pay creditors. In the case of an individual, the debtor is allowed to claim certain property as exempt. In exchange for this, the debtor gets a discharge, which means that the debtor does not have to pay certain types of debts. Corporations and partnerships do not receive discharges. Consequently, any individuals legally liable for the partnership’s or corporation’s debts will remain liable. Therefore, individual bankruptcies may be required as well as the corporation or partnership bankruptcy.
What is a Chapter 12 Bankruptcy?
Chapter 12 offers bankruptcy relief to those who qualify as family farmers. There are debt limitations for Chapter 12, and a certain portion of the debtor`s income must come from the operation of a farming business. Family farmers must propose a Plan to repay their creditors over a period of time from future income and the Court must approve it. Plan payments are made through a Chapter 12 Trustee who also monitors the debtor`s farming operations while the case is pending.
What is a Chapter 9 Bankruptcy?
Chapter 9 is only for municipalities and governmental units, such as schools, water districts, some utility companies and other similar organizations.
The discharge order is issued by the Court and permanently prohibits creditors from taking action to collect dischargeable debts against the debtor personally; this does not prevent secured creditors from seizing collateral if payments are not kept up, or other creditors from pursuing property of the estate. Some debts are not dischargeable, and others may be found to be non dischargeable depending on particular circumstances.
11 U.S.C. § 523 lists exceptions to discharge. In general, all other debts not listed there are dischargeable. Some debts listed in 11 U.S.C. § 523, such as those based on fraudulent conduct, embezzlement or willful and malicious injury to another, may be discharged unless a Complaint to deny discharge of that debt is timely filed with the Bankruptcy Court. Ordinarily, these Complaints must be filed within sixty (60) days of the first date set for the meeting of creditors. Additionally, debts that were not listed on your bankruptcy schedules or that were incurred after you filed bankruptcy are generally not discharged. Denial of a discharge goes to the debtor’s entire proceeding, while determination of non dischargeability goes to a particular debt only. A request for denial of discharge may be granted when the debtor has defrauded a creditor, concealed property of the estate, made a false oath, presented or used a false claim, refused to obey any lawful order of the Court and other reasons contained in the Bankruptcy Code. A non dischargeability of a debt excepts a particular debt from the discharge. This means that if the debt is determined to be non dischargeable the debtor is still obligated to pay that creditor.
Priority debt is a debt entitled to priority in payment in a bankruptcy case. A general listing of priority debts is given in 11 U.S.C. § 507 of the Bankruptcy Code. Examples of priority debts are some taxes, wage claims of employees, debts related to goods and services provided to a debtor’s estate during the pendency of a bankruptcy case. In addition, alimony, maintenance or support of a spouse, former spouse, or child is considered a priority debt. If you have questions deciding which of your debts are entitled to priority status, you should consult an attorney.
Can Chapter 7 Bankruptcy help me with taxes that I owe?
Entire books have been written just on this subject. The best answer we can give you without meeting with you in person is that bankruptcy MAY be able to help you. In general, though, there are five rules that govern the discharge of taxes in Chapter 7 Bankruptcy cases. To be eligible for discharge, ALL FIVE of these rules must be met:
1. The three-year rule: The tax year in question must be over three years old, dated from the most recent date the tax return was due to be filed; The three-year period is computed from the most recent date the tax return is due for the tax year (typically April 15 of the year following the tax year) including any more recent due date resulting from a taxpayer's filed extension. Time is tolled for various circumstances.
2. The two-year rule: The tax return must have actually been filed more than two years before the bankruptcy; a substitute for return does not count, except in some very limited circumstances. However, even where no tax return was filed the tax may still be dischargeable in Chapter 13.
3. The 240-day rule: The tax in question must have been assessed for more than 240 days prior to the bankruptcy (plus any period of time during which an offer in compromise was pending, plus 30 days). This period may be tolled by an offer-in-compromise;
4. The non-fraudulent return rule: The tax return for the tax year in question must have been non-fraudulent;
5. The non-tax evasion rule: The taxpayer must not have been guilty of a willful attempt to evade or defeat the tax.
A secured debt is a debt that is backed by property. A creditor whose debt is secured has a right to take property to satisfy a secured debt. For example, most homes are burdened by a secured debt. This means that the lender has the right to take the home if the borrower fails to make payments on the loan. Most people who buy new cars give the lender a security interest in the car. This means that the debt is a secured debt and that the lender can take the car if the borrower fails to make payments on the car loan.
A debt is unsecured if you have simply promised to pay someone a sum of money at a particular time, and you have not pledged any real or personal property as collateral for that debt. Typically, all credit cards are an unsecured debt, as are medical bills and student loans.
What are “exemptions” and how do I claim them?
11 U.S.C. § 522(b) allows an individual debtor to exempt real, personal, or intangible property from the property of the estate. State law protects exempt assets from distribution to your creditors. Typically, exempt assets include vehicles up to a certain dollar amount, the equity in your home up to a certain amount, and tools of the trade. Exemptions are claimed on Schedule C of your Voluntary Petition. As with all schedules, it is important to fully complete and provide all the information requested. If no one objects to the exemptions you have listed within the time frame specified by the Bankruptcy Court, these assets will not be a part of your bankruptcy estate and will not be used to pay creditors through your bankruptcy case. Deciding which assets are exempt and how and if you can protect these assets from your creditors can be one of the more important and difficult aspects of your bankruptcy case. It is extremely important to consult an attorney regarding the issue of exempt assets.
What is a “Plan” and do I need one?
The Plan is a document that sets out how a Chapter 13 Debtor will repay creditors. The Plan divides creditors into specific classes. It specifies the treatment of claims for each class of creditor and provides a means for the Plan’s implementation. It is a very complex document which binds you and your creditors to act in certain ways, so it should only be filed after careful thought and review. We highly recommend that you consult with an attorney before filing any Chapter 13 Plan. Creditors are given an opportunity to object to the repayment Plan which you propose. If no objection is filed by creditors or the Trustee, the Plan may be confirmed as filed. Once the Plan is confirmed, the Trustee will distribute the proceeds of the debtor’s Plan payments to creditors until the debtor completes the Plan or the Court dismisses or converts the case. Upon completion of the Chapter 13 Plan, the Court will issue a discharge order IF the debtor is eligible to receive a discharge; the Trustee will prepare a final report, and the case will be closed.
Overview | Types of Bankruptcy | Prepare to file | After filing