Modern law and debt restructuring
Chapter 13 does not have the same stigma or myths surrounding it as chapter 7, as this type of bankruptcy mainly serves as a restructuring policy for your existing debt. Chapter 13 is called a wage earner’s plan as it strives to place individuals on a path to repay the large majority of their debt through stringent budgeting and monthly payments. As such, under chapter 13 you work with a lawyer to understand your debt and work out a budget that can have you in the clear with creditors within 5 years. This gives many individuals a second chance at saving larger assets, such as their home, which can often be pulled out of foreclosure through filing for chapter 13.
Effective sovereign bankruptcy
The debtor in possession or the trustee, as the case may be, has what are called "avoiding" powers. These powers may be used to undo a transfer of money or property made during a certain period of time before the filing of the bankruptcy petition. By avoiding a particular transfer of property, the debtor in possession can cancel the transaction and force the return or "disgorgement" of the payments or property, which then are available to pay all creditors. Generally, and subject to various defenses, the power to avoid transfers is effective against transfers made by the debtor within 90 days before filing the petition. But transfers to "insiders" (i. E. , relatives, general partners, and directors or officers of the debtor) made up to a year before filing may be avoided. 11 u. S. C. §§ 101(31), 101(54), 547, 548. In addition, under 11 u. S. C. §544, the trustee is authorized to avoid transfers under applicable state law, which often provides for longer time periods.
Bankruptcy will effectively get rid of (discharge) many types of debts but not necessarily everything that you owe. You’ll likely want to start by reviewing your debts, and determining whether a bankruptcy discharge would wipe out your debts and provide the relief you need. Also, in a chapter 7 bankruptcy , you might have to give up property that you can’t protect (exempt), but, you won’t have to repay your creditors. By contrast, you’ll be able to keep your property in a chapter 13 bankruptcy , but you’ll have to repay your creditors some amount in a three- to five-year repayment plan.
A case filed under chapter 11 of the united states bankruptcy code is frequently referred to as a "reorganization" bankruptcy. An individual cannot file under chapter 11 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)-(e). In addition, no individual may be a debtor under chapter 11 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.
Bankruptcy basics is a publication of the administrative office of the u. S. Courts. It provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed and answers some of the most commonly asked questions about the bankruptcy process. Bankruptcy basics (pdf) for cases filed before October 17, 2005.
An individual cannot file under chapter 11 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)-(e). In addition, no individual may be a debtor under chapter 11 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.
You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):
chapter 7 – a trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the state where you live and applicable federal laws. Chapter 13 – you can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
Chapter 12 – like chapter 13, but it is only for family farmers and family fishermen. Chapter 11 – this is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property. If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.
Chapter 7 is designed for individuals and businesses experiencing financial difficulty that do not have the ability to pay their existing debts. Under chapter 7 a trustee takes possession of all of your property. You may claim certain property as exempt under governing law. A bankruptcy trustee then liquidates all non-exempt property and uses the proceeds to pay your creditors according to a distribution scheme required by the bankruptcy code. The main purpose of filing a chapter 7 case is to obtain a discharge of your existing debts. A bankruptcy discharge is a court order releasing you from liability for many types of debts. If, however, you are found to have committed certain kinds of improper conduct described in the bankruptcy code, your discharge may be denied by the court and the purpose for which you filed the bankruptcy petition will be defeated.
Chapter 13 is designed for individuals with regular income who are temporarily unable to pay their debts. Chapter 13 gives them the option to pay their debts in installments over a period of time. You are eligible for chapter 13 if your debts do not exceed certain dollar amounts set forth in the bankruptcy code. Under chapter 13 you must file a plan with the court to repay your creditors all or part of the money that you owe them, using your future earnings. Usually the period allowed by the court to repay your debts is three years, but may be extended to five years. Your plan must be approved by the court before it can take effect.
Banco santander (brasil) in a litigation against american airlines seeking a declaratory judgment that their co-brand credit card agreement has been terminated as a result of american airline’s cessation of flights to brazil as a result of the covid-19 crisis
eastman kodak, in both offensive and defensive litigation integral to its successful chapter 11 case and global reorganization, including successful litigation to protect kodak’s intellectual property rights. Fxi holdings, a leading manufacturer of furniture, bedding, carpet cushion and automotive foam products, was accused of being liable for an 11-year price-fixing conspiracy. The court held that fxi did not incur the liabilities of its predecessor corporation, foamex international, whose assets fxi acquired in a bankruptcy sale auction.
Jpmorgan chase as creditor in the global a&t electronics ltd. Chapter 11 proceedings
dish network corporation, echostar corporation and l-brand acquisition, llc in litigation related to purchases of lightsquared l. P. Secured debt by sp special opportunities holdings llc
sunedison resolution of litigation between non-debtor subsidiaries and their debtor parent (terraform power and terraform global), and sale of those non-debtor subsidiaries to third party with debtor cooperation (largest restructuring of the year; standout: “managing complexity and scale,” financial times 2017).
Your income and assets will determine the bankruptcy chapter you file. For instance, too much income might preclude you from filing a simple chapter 7 case. Or, if you have property you’d lose in chapter 7 that you’d like to keep, you can protect it in chapter 13. In chapter 7 bankruptcy, the bankruptcy trustee has the power to sell your nonexempt property to pay back your creditors. As a result, chapter 7 might be costly if you own a lot of assets. By contrast, chapter 13 bankruptcy allows you to keep all of your property in exchange for paying back a portion or all of your debts through your repayment plan.
For homeowners who have fallen behind on mortgage payments, chapter 13 offers a way to catch up or "cure" past due mortgage payments while simultaneously eliminating some portion of dischargeable debt. Filers can save the home from foreclosure and get rid of a lot of credit card debt, medical debt, and possibly even second and third mortgages or helocs. Chapter 7 bankruptcy does not provide a way for homeowners to make up mortgage arrears, so it’s not a good choice for delinquent homeowners who want to keep a home.
Federal bankruptcy laws govern how companies go out of business or recover from crippling debt. A bankrupt company, the "debtor," might use chapter 11 of the bankruptcy code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court. Under chapter 7, the company stops all operations and goes completely out of business. A trustee is appointed to "liquidate" (sell) the company's assets and the money is used to pay off the debt, which may include debts to creditors and investors.
Some companies are so far in debt or have other problems so serious that they can't continue their business operations. They are likely to "liquidate" and file under chapter 7. Their assets are sold for cash by a court appointed trustee. Administrative and legal expenses are paid first, and the remainder goes to creditors. Secured creditors will have their collateral returned to them. If the value of the collateral is not sufficient to repay them in full, they will be grouped with other unsecured creditors for the rest of their claim. Bondholders, and other unsecured creditors, will be notified of the chapter 7, and should file a claim in case there's money left for them to receive a payment.
What Is a Bankruptcy Discharge and How Does It Operate?
Section 1141(d)(1) generally provides that confirmation of a plan discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts. There are, of course, exceptions to the general rule that an order confirming a plan operates as a discharge. Confirmation of a plan of reorganization discharges any type of debtor – corporation, partnership, or individual – from most types of prepetition debts. It does not, however, discharge an individual debtor from any debt made nondischargeable by section 523 of the bankruptcy code. (1) moreover, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments have been made under the plan. 11 u. S. C. §1141(d)(5). Confirmation does not discharge the debtor if the plan is a liquidation plan, as opposed to one of reorganization, unless the debtor is an individual.
The department of justice’s u. S. Trustee program approves organizations to provide the credit counseling and debtor education required for anyone filing for personal bankrutpcy. Only the counselors and educators that appear on the u. S. Trustee program’s lists can advertise that they are approved to provide the required counseling and debtor education. By law, the u. S. Trustee program does not operate in alabama and north carolina; in these states, court officials called bankruptcy administrators approve pre-bankruptcy credit counseling organizations and pre-discharge debtor education course providers.
There are, of course, exceptions to the general rule that an order confirming a plan operates as a discharge. Confirmation of a plan of reorganization discharges any type of debtor – corporation, partnership, or individual – from most types of prepetition debts. It does not, however, discharge an individual debtor from any debt made nondischargeable by section 523 of the bankruptcy code. (1) moreover, except in limited circumstances, a discharge is not available to an individual debtor unless and until all payments have been made under the plan. 11 u. S. C. §1141(d)(5). Confirmation does not discharge the debtor if the plan is a liquidation plan, as opposed to one of reorganization, unless the debtor is an individual. When the debtor is an individual, confirmation of a liquidation plan will result in a discharge (after plan payments are made) unless grounds would exist for denying the debtor a discharge if the case were proceeding under chapter 7 instead of chapter 11.
Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. Those assets of a debtor that are not exempt from creditors are collected and liquidated (reduced to money), and the proceeds are distributed to creditors. A consumer debtor receives a complete discharge from debt under chapter 7, except for certain debts that are prohibited from discharge by the bankruptcy code. Chapter 11 bankruptcy provides a procedure by which an individual or a business can reorganize its debts while continuing to operate. The vast majority of chapter 11 cases are filed by businesses. The debtor, often with participation from creditors, creates a plan of reorganization under which to repay part or all of its debts.
Before we compare debt settlements and bankruptcy, it’s important to understand how debt operates. There are different kinds of debt and there are different laws and regulations governing them. This means that part of the answer to debt settlement or bankruptcy being a better option involves understanding the kinds of debt you have. For example, companies aren’t obligated to accept a debt settlement, so if your lenders refuse to accept a settlement, then bankruptcy might be the only option. In the same way, there are some debts that can’t be discharged in bankruptcy, like student loans. If these sorts of debts make up the majority of your balance, then bankruptcy isn’t going to improve your situation very much.
If you can pay off the debt, it’s almost always better to do so. Filing for bankruptcy will destroy your credit rating and make it next to impossible to borrow money in the near future. You can use methods such as debt consolidation to help you pay off your current debt levels faster.
Filing bankruptcy can help a person by discarding debt or making a plan to repay debts. A bankruptcy case normally begins when the debtor files a petition with the bankruptcy court. A petition may be filed by an individual, by spouses together, or by a corporation or other entity. All bankruptcy cases are handled in federal courts under rules outlined in the u. S. Bankruptcy code. There are different types of bankruptcies, which are usually referred to by their chapter in the u. S. Bankruptcy code.
In most cases, debt collectors cannot collect after filing bankruptcy. Most debt collector accounts are discharged during chapter 7 bankruptcy. If the debt is not covered by bankruptcy, then the debt collector can still pursue your debt. Make sure you understand which debts are covered by your bankruptcy.
Individuals may file chapter 7 or chapter 13 bankruptcy, depending on the specifics of their situation. Municipalities—cities, towns, villages, taxing districts, municipal utilities, and school districts may file under chapter 9 to reorganize. Businesses may file bankruptcy under chapter 7 to liquidate or chapter 11 to reorganize. Seeking the advice of a qualified lawyer is strongly recommended because bankruptcy has long-term financial and legal consequences. Individuals can file bankruptcy without a lawyer, which is called filing pro se. Learn more.
Bankruptcy basics (pdf) for cases filed on or after october 17, 2005
bankruptcy basics is not a substitute for the advice of competent legal counsel or a financial expert, nor is it a step-by-step guide for filing for bankruptcy. The administrative office of the united states courts cannot provide legal or financial advice. Such advice may be obtained from a competent attorney, accountant, or financial adviser. November 2011
while the information presented is accurate as of the date of publication, it should not be cited or relied upon as legal authority. It should not be used as a substitute for reference to the united states bankruptcy code (title 11, united states code) and the federal rules of bankruptcy procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, this publication should not substitute for the advice of competent legal counsel.
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