Bankruptcy InformationTo Help You Decide

Hellen Krotsova asked:




Declaring bankruptcy, filing for bankruptcy, call it what you will, it is traumatic, agonizing and extremely difficult to cope with. Bankruptcy will affect your credit rating, relationships and lower your own self worth considerably, so think long and hard about your decision to file. It is not something you wake up one morning and decide to do. The short term benefits are really peace of mind from your creditors and possibly saving your home or car from being repossessed.

Bankruptcy or personal liquidation is to be considered debt management of the last resort; its tentacles are far reaching and the effects extremely long lasting. No one wants to undergo a major surgery if they can avoid it, think of liquidation in the same light.

This article has covered the pros and cons of filing for insolvency and this will help you make an informed decision should the need arise.

The pros

o The filing for insolvency puts a freeze on any collection action by your creditors; no foreclosures and repossessions. When you file through an attorney, the attorney will act on your behalf, handling all inquiries from creditors. Once you file you will probably have the first good night’s peaceful sleep in a long time!
o Each state has its own laws for filing but most states have an across the board policy that will allow you to exempt the car, home and certain other essentials; the reason being, you should not end up homeless and unable to move around. It is understood by the court that you need a place to stay and a car to move around in to be able to start a new life.
o Once you file for insolvency, you can begin to rebuild your credit standing, get a job maybe and start to rebuild a new life for yourself. Should some other financial disaster occur, you are allowed to amend the Chapter 13 filing to include it under the same umbrella.
o Student loans are not part of your filing and will have to be paid off; the upside is thanks to your filing your creditors cannot use hard line tactics to collect from you. Moreover they will have to go through your lawyer to get to you.
o Interest rates on any term loans you have outstanding, like mortgages can be lowered, because they can be amended to reflect the current property value, when you file under Chapter 13.

The cons

o All your credit cards will be closed unless you manage to pay them before the filing is done. You stand to lose some of your luxury goods as well. Life as you knew will change so prepare your self.
o Once you file for insolvency, there is no way you can secure a mortgage loan; it will take at least 5 years before you become eligible for one.
o When you file it goes on your credit report and stays there for 10 years before the record is wiped clean. During this time acquiring any kind of credit, buying property, an automobile, insurance and even getting a job will become very difficult.
o When you file, you are admitting defeat and your name will be in the court records and also appear in the newspapers.
o Explaining to the judge or court official how you landed in a mess financially, will probably be extremely embarrassing and difficult. Moreover, the courts have heard every hard luck story in the book and really have no sympathy.

Erik Ryan

Oral Nicholson asked:




Filing for bankruptcy issues an automatic stay from most action against the debtor from things like a foreclosure, lawsuit and even garnishments. The stay was enacted to keep the debtors property protected but the stay is not permanent. If you are a creditor they try to get relief from the stay by going after the debtor they must consult the judge assigned to the case first. There may be a hearing that the creditor must show cause as to why they wish to collect before the discharge of the bankruptcy.

A creditor that is seeking relief from the stay in order to go ahead against the debtor the property of the debtor must be able to proof to the bankruptcy judge during a hearing that there is enough cause for granting the relief or lift of the stay. Cause may be proven by showing that the interest of the creditor is not really protected or by showing the judge that the debtor has no real equity in the property and the property itself is not needed in order for reorganization through Chapters 11 and 13.

Most commonly it is the secured creditor who is out to get relief for foreclosure stay or car repossession. The creditor can often get relief from the stay in order to foreclosure on real estate when the debtor has no equity put into it. When the equity is small in a property the debtor make have to make something called protection payments so that the creditors cannot get the property.

When a relief is granted, it does not automatically mean that the creditor gets the property it just means that it is fair game and a creditor can call and do what they can within reason to get their property back. Creditors are the only ones who want the relief of a stay and you need a good lawyer to fight a stay. Once a judge grants a stay you have to have a real good case as to why the judge should take it off.

As we mentioned a stay is only temporary when a bankruptcy case is being filed, once a claim has been discharged or dismissed then the stay is then lifted. But if a bankruptcy is discharged under Chapter 7 then assets will be liquidated and give to creditors so collections should not be an issues for Chapters 7. Chapter 11 and 13 have 5 years to repay and since an agreement in court will be made then unless you don’t make those payments on time then a creditor can call you and there is nothing you can do.

The same is said if a bankruptcy is dismissed then a judge did not find a bankruptcy was proven. In a case like this unless there is some type of fraud happening mostly all bankruptcies are discharges but in the case of a dismissal then a debtors credit is fair game again and there is nothing you can do about it, except maybe try credit counseling.

Ruth Fernandez

sadanand naik asked:




BANKRUPTCY LITIGATION IN USA

INTRODUCTION

A bankruptcy case is a special kind of a civil case, involving people or companies who can no longer pay their debts.

Congress has established a special court, called as the bankruptcy court to adjudicate bankruptcy matters. Bankruptcy protects both the debtors and creditors

HIERARCHY OF COURTS

Ø     US Supreme Court

Ø     The Circuit court of appeals

Ø     The district courts or bankruptcy appellate tribunal (BAP )

Ø     The bankruptcy courts

GOVERNING LAWS

Ø     Title 11 Federal rules of bankruptcy procedure

Ø     Title 18 Crimes (sec.151 through 158 deals with bankruptcy fraud and other bankruptcy crimes). E.g.

Ø     Title 26 IRC Implication of tax avoidance

Ø     Title 28 Judiciary and judicial process

Ø     Federal rules of appellate procedure

Ø     Federal rules of Evidence.

BANKRUPTCY JUDGESHIPS

The judges to the bankruptcy courts are appointed by the judges of US circuit courts for such circuits for the period of 14 years. Currently there are 324 judgeships in the US.

THREE MAIN CHAPTERS ON BANKRUPTCY

There are mainly three chapters under the bankruptcy law in USA.

Chapter 7: liquidation

Chapter 11: Reorganization

Chapter 13: Adjustment of debt of the persons, having regular income.

CHAPTER 7: LIQUIDATION

Bankruptcy under this chapter offers a fresh start for the individuals. In this chapter, most of the debtor’s property will be sold to raise the amount of the creditor. If the value of the asset is more than the debt owed, the remaining amount will be paid to the debtor.

After, 2005 enactment by the congress, it is mandatory to pass the Means test in order to qualify for the filing bankruptcy under chapter 7.

How the case move through under chapter 7

1. Petition

The case begins with the filing of voluntary petition with the clerk of the bankruptcy court. Debtor must also file the following documents shortly after filing the petition, they are

1. the list if creditors

2. the schedule of assets

3. the statement of financial affairs

If the debtor is not in position to pay the fees at once, he can request for payment in installments.

It is not necessary that always the creditor must file the petition. Even the creditors can initiate the bankruptcy proceedings; these are called as the involuntary petitions. If the debtor has not more than 11 creditors, then the one creditor can file an involuntary petition. If it is more than 12 creditors, three creditors must join together to file a petition.

2. Automatic stay

Once the petition filed before the bankruptcy court, there will be an automatic stay. It stays the suits, claims, appeals filed against one another before or after

3. Trustee selection

After filing a voluntary petition in the bankruptcy court, a notice will be sent to all the creditors. The creditors are required to be present at the trustee selection. Then the case will be assigned to bankruptcy judge and added to the docket of the US Trustee. US trustees maintains the list of case trustees.These case trustees will liquidate the debtor property at the auction or at the private transactions and collect the money, deposit it in the account maintained for that purpose.

4. Creditors meeting

It is also called as the Sec.341 meeting. Interim trustee will preside over this meeting. After a notice issued to the creditors, creditors have to come before the court and attend the meeting. If the creditor is not found, it will be published in the newspapers on which date the creditors have to attend the court.

It is compulsory that the debtor must be present at the meeting. The debtor will be put under oath and he will be asked several questions by the creditors. The purpose of this meeting is get to know hidden assets or undervalued assets of the debtor. And finding out is there any claim by the debtor which would yield more money if pursued. And the goal is to accumulate more money for the bankruptcy estate.

5. Liquidation of assets

After the creditors meeting, the case trustees will sell the asset of the debtor either at the auction or at he private transactions.

If the debtor is the business, it will cease to exist. If it is an individual he will be discharged. However certain debts are not dischargeable such as the alimony, taxes etc.

6. Collection of the bankruptcy estate

Once the assets are liquidated, case trustee will deposits the amount in the bank account, along with any other amount accumulated from the legal suits.

7. Distribution of the bankruptcy estate

After the deposit of amount in the account, the amount deposited will be distributed among the creditors.

Majority of the cases are no asset cases. If there are no assets to distribute then the case trustee will simply file before the court a report no assets to distribute.

Even if there is money to distribute, sometimes the creditors would not get the whole amount which is due to him by the debtors. Sometimes some creditor will get less, some creditors will get more.

The question arises in our mind is that, who will be paid first. At the stage of distribution, the administration of the estate such as the professional fees of the trustee, attorney or accountant appointed by the bankruptcy estate will be paid first.

8. Claims

There are two kinds of the claim and creditors in the bankruptcy. One is the Secured claims and other one is an unsecured claims. Secured claims are one that gives the creditor an interest in property as assurance of payment. For example people will mortgage house in secure of loans. If the loan is not paid there will be foreclosure and sale of the house. Holder of unsecured claims cannot look into any such payments.

Under unsecured claims are again divided into two: Unsecured priority claims and unsecured non priority claims. Unsecured creditors who have priority must be paid first before paying to unsecured non priority claims.

In Campbell v. Countrywide Home Loans, Inc., 2008 U.S. App. LEXIS 21405 (5th Cir. October 13, 2008, Filed)

It was held that an automatic stay serves to protect the bankruptcy estate from actions taken by creditors outside the bankruptcy court forum, not legal actions taken within the bankruptcy court.

9. Conversion

A chapter 7 debtor has right to convert the chapter 7 case to one under chapter 11 or 13 at any time during the proceedings.

In re South Star Oil Co.,2008 Bankr. LEXIS 2426 (Bankr. D.Or., September 15, 2008, Decided)

Held that a cause for conversion or the dismissal includes a number of criteria, including substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation

In Toibb v. Radloff, 501 U.S. 157 (1991)

In this case the voluntary petitioner, after discovering stock in an electronic power company, has substantial value, decided to avoid its liquidation by seeking conversion to chapter 11. His motion was granted and he was allowed to file a reorganization plan. But the court dismissed his petition finding that he did not qualify for relief under Chapter 11 because he was not engaged in an ongoing business. The District Court and the Court of Appeals affirmed.

10. Dispute resolution

The petition may be contested after filing the bankruptcy petition through the adversary proceedings. for example one party may initiate proceeding against the other by filing the complaint and questioning the validity of the petition such will be adjudicated if the parties are willing to adjudicate. There may even be motions objecting to the discharge of the debtor, objections to the sale of debtor’s property.

In Dewsnup v. Timm et al].

Petitioner Dewsnup, the debtor in a case under Chapter 7 of the Bankruptcy Code, filed an adversary proceeding, contending that the debt of approximately $120,000 that she owed to respondents exceeded the fair market value of the land securing the debt and that, therefore, the Bankruptcy Court should reduce respondents’ lien on the land to the land’s fair market value pursuant to 11 U. S. C. § 506(d), The court determined that the then value of the land in question was $39,000, but refused to grant the requested relief and entered a judgment of dismissal with prejudice. The District Court and the Court of Appeals affirmed.

Held: Section 506(d) does not allow Dewsnup to “strip down” respondents’ lien to the judicially determined value of the collateral, because respondents’ claim is secured by a lien and has been fully allowed pursuant to § 502 and, therefore, cannot be classified as “not an allowed secured claim” for purposes of the lien-voiding provision of § 506(d). Pp.414-420.

11. Discharge and closing of case

After the property of debtor is sold and distributed among its creditors, the debtor will get discharged. However the debts like alimony, child support and certain taxes which are due to the government cannot be get discharged.

In Roe v. College Access Network , 2008 U.S. App. LEXIS 21362 (10th Cir., October 9, 2008, Filed)

It was held that a permanent medical condition will certainly contribute to the unlikelihood of a debtor earning enough money to repay her student loan debt, but such a condition is not a prerequisite to discharging the debt.

In re Hlavin, 2008 Bankr. LEXIS 2397 (Bankr. D. Ohio, September 30, 2008, Decided)

It was held that under 11 U.S.C.S. § 707(b)(1), the court may dismiss a case filed by an individual debtor under Chapter 7 whose debts are primarily consumer debts if it finds that the granting of relief would be an abuse of the provisions of Chapter 7.

12. Appeal

When there is a discharge of the debt or dismissal of the bankruptcy petition, there may be an appeal. If the petition dismissed, the debtor may go an appeal. If there is discharge without any payment to the creditors, the creditors may go an appeal. Appeal may be preferred either to the district court or to the bankruptcy appellate panel. Where there is no bankruptcy appellate panel, appeal is always preferred to the district court.

CHAPTER 11: REORGANIZATION

This chapter is known as the business reorganization chapter. Sometimes individuals may also seek remedy under this chapter. Once the petition is filed under this chapter the debtor shall also file plan of reorganization.

Debtor is also required to file following documents along with the voluntary petition.

Ø     Schedules A through J

Ø     Summary of Schedules

Ø     Statement of Financial Affairs

Ø     Matrix

Ø     Statement of No Prior Filing

Ø     List of Equity Security Holders

Ø     Corporate Resolution (when applicable)

Ø     Pro Se Debtor’s Statement

How the proceedings takes place under chapter 11

1. Petition

There will be a voluntary or involuntary petition

2. Automatic stay

There will be an automatic stay after the petition is filed.

In re Forletta, 2008 Bankr. LEXIS 2491 (Bankr. D.N.Y., October 10, 2008, Decided) 

Held: debtor could not extend the automatic stay under 11 U.S.C.S. § 362(c)(3)(B) because the debtor’s earlier Chapter 7 proceeding was closed on a final decree and discharge under 11 U.S.C.S. § 727 and § 362(c)(3)(B) did not apply unless the case had been dismissed under 11 U.S.C.S. § 707. Extension of stay was warranted under § 362(c) (3)(C).

3. Continued control by management

As in chapter 7 case, the US trustee doesn’t appoint a case trustee; instead the US trustee monitors the progress of the case. He reviews the financial reports of the debtor, who continued to operate the business and adequacy of the disclosure statement and reorganization plan.

4. Role of the creditors committee

There will be an unsecured creditors committee appointed by the US trustee who is willing to serve monitor the case. Unsecured creditors cannot look at he specific property of the debtor.

Difference secured claim and unsecured claim

A secured claim is one that gives the creditor an interest in property as assurance of payment, such as a mortgage on the house to secure a home loan; the holder of an unsecured claim can’t look to any specific property of the debtor for payment. The committee negotiates with the debtor to develop a plan that will protect the interests of unsecured creditors. Because there is no case trustee in a Chapter 11 case, the committee has the authority to perform investigative functions, such as reviewing the debtor’s assets, liabilities, and financial conduct to determine its ability to continue in business.

5. Creditors meeting

It is also called as the 341 meeting. It may take place within 20 to 40 days of filing the bankruptcy petition. Debtor takes an oath in this. Usually US trustee or the assistant presides at the 341 meeting.

6. Plan of reorganization

It is a Debtor’s proposal to repay the amount in certain period. Debtor files it in the court for its approval.

7. Disclosure and disclosure statement

The debtor must file the disclosure statement which must be approved by the court. Once this filed there will be a disclosure hearing. Sometimes the creditors may oppose to it. Once the disclosure statement is approved he or she will also set a time limit on voting for or against the reorganization plan.

8. Voting and confirmation

Once the debtor has the reorganization plan the court must approve or confirm the plan. Before confirmation hearing, each class of creditors votes separately by mail on whether to accept the plan. If a majority of the voters in each class and holders of two-thirds of the amount of claims in each class approve the plan, the court will generally confirm the plan. The plan then becomes binding on all of the pre confirmation creditors, whether they voted for or against it.

If majority of the creditors did not approve the plan, then the debtor may attempt a cram down.

9. Discharge

After the reorganization plan is confirmed the debtor gets a discharge. Most claims for pre confirmation debts are wiped out. The debtor only has to pay the debts spelled in the plan.

Custom Mortg. Solutions, Inc. v. Hood (In re Hood),

2008 Bankr. LEXIS 2474 (Bankr. D. Ill., October 2, 2008, Decided) 

A plaintiff has the burden of proof by preponderance of the evidence to show that the debt in question is non-dischargeable under 11 U.S.C.S. § 523(a)(6).

In re Timmerman, 379 B.R. 838, 2007 Bankr. LEXIS 4055 (Bankr. D. Iowa, December 10, 2007, Decided) 

Debtors were estopped from seeking dismissal of their bankruptcy action under 11 U.S.C.S. § 707(a) because they falsely stated that they had obtained credit counseling and had taken advantage of the bankruptcy laws for 21 months, and granting their motion would have prejudiced their creditors and impaired the integrity of the bankruptcy system.

10. Paying creditors

The debtor has to make payments according to the reorganization plan. If not met accordingly, the creditors can seek the liquidation of the debtor by moving to convert the cases to chapter 7, or they may sue to force the debtor to make the plan payments.

11. Dispute resolution

Suits, contesting matters will be resolved if any.

12. Appeal

Appeal is preferred either to the bankruptcy appellate tribunal or to the district courts.

CHAPTER 13:ADJUSTMENT OF DEBT OF THE PERSONS, HAVING REGULAR INCOME

Under this chapter debtor develops a plan, how he  or she proposes to repay creditors. By agreeing to use future income for plan payments, the debtor is able to keep his or her property.

Difference chapter 7 and chapter 13

In chapter 7 the debtor property is liquidated but it does not include future income.

But in the chapter 13 debtors is allowed to keep his property and the debtors have only 15 days to propose a plan, in contrast to the 120 days of chapter 11 debtors.

How the proceedings takes place

1. Petition

Debtor files a voluntary petition before the court. He is required also to file following documents:

Ø     Schedules A through J

Ø     Statement of Financial Affairs

Ø     Matrix

Ø     Statement of No Prior Filing

Ø     Plan

Ø     Disclosure of Compensation – FRBP 2016(b)

Ø     Pro Se Debtor’s Statement

Ø     Filing fee

2. Automatic stay

Once the petition is filed before the court, every suit concerning the debt recovery will be stayed.

3. Creditors meeting

It is also called as the 341 meeting. It may take place after the 15 to forty days after the petition is filed. Both creditors and the debtor attend it.

Chapter 13 trustees or Standing trustee presides over the 341 meeting.

4. Confirmation

Before the debtors plan takes effect, the court must approve the plan. It is the standing trustee’s job to review the plan and advice the court whether it seems workable or legal. Standing trustee has to recommend the plan. Creditors have no right to propose a new plan but they can oppose the plan.

5. Paying creditors

Within thirty days after filing the plan, the debtor must start paying the creditors. Debtor pays it to the trustee who then pays it to the creditors as provided for in the plan. The debtor has up to five years to pay of his debts.

6. Dispute resolution

Adversary proceedings if any contested matters will be resolved at this stage.

7. Discharge

After completion of plan payments, the debtor will receive a discharge. It discharges all debts except the long term home mortgage debts, alimony, child support obligations, and certain education loans.

8. Appeal

Appeal may preferred either to the district court or to the BAP.

Sadanand Naik



Bertie Andrews