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The Basics of Bankruptcy
How do I begin? You begin a payment plan
(Chapter 13) or a liquidation (Chapter 7) case by filing a petition with the
federal Bankruptcy Court serving the area where you
live (if you are an individual) or where you have your main office or assets
(if you are a business). You must also
file with the court schedules of assets and liabilities, a schedule of
current income and expenditures, a statement of financial affairs, and a
schedule of pending contracts and leases. A husband and wife may file together,
using a joint petition. What is Electronic Case Filing? Electronic Case Filing (ECF) allows your
attorney to file your bankruptcy petition and other documents with the
federal court through the Internet.
The only paper copies are the originals your attorney keeps and the
copies he gives you for your personal records. The electronic filing creates a completely
electronic "case file" at the court, which can be viewed 24/7 by
you, your attorney and your creditors through the Internet. Only an ECF-certified attorney is allowed
to file your bankruptcy paperwork through the Internet. What will happen when
I file a Chapter 13 or 7 case? When you file a petition under Chapter 13 or
7, a federal law called a “stay” stops most creditor actions against you or
your property. As long as the
stay continues, creditors generally cannot pursue lawsuits, wage garnishments,
repossessions or even telephone calls demanding payment. A court-appointed Trustee holds a “meeting
of creditors” 20 to 40 days after the petition is filed. You must attend this meeting and answer the
Trustee’s questions under oath. If a
husband and wife have filed a joint petition, they both should attend the
creditors’ meeting. It is important
for you to cooperate with the Trustee and to provide any financial records or
documents that the Trustee requests. You should receive a discharge 60 to 90
days after the date first set for the meeting of creditors. What is a “discharge” in bankruptcy? A discharge releases
you from personal liability for all of your discharged debts and gives you a
financial “fresh start”. A creditor
whose unsecured claim is discharged may no longer attempt to collect the
obligation from you. However, federal
law does not allow a discharge to eliminate alimony, child maintenance and
support obligations, certain taxes, student loans made or guaranteed by a
governmental unit, debts for willful and malicious injury, debts for death or
personal injury caused by operation of a motor vehicle while intoxicated from
alcohol or other substances, and criminal restitution orders.
What
Are The Good and Bad of Chapter 13? A payment plan
(Chapter 13) allows you to make payments to your creditors through the court
for five years. If you have a steady income,
for example, you can catch up missed payments on a mortgage on your home or
on the financing on your vehicle. The
first challenge is creating a payment plan that will accomplish your
financial goals and will convince the federal bankruptcy judge that it really
is your best effort. If the judge
accepts your proposal, you can keep your home or vehicle, and your plan
creditors must wait for their payments from the court. After the court confirms your plan, the
second challenge is sticking to your plan schedule, making your payments
faithfully for five, long years. Some
people make their payments themselves, but the court can order that your plan
payments be deducted from your salary or payroll check at work. What Are The Good and
Bad of Chapter 7? A liquidation case
(Chapter 7) wipes out (discharges) all of your listed debts (except for
certain types mentioned above) without the burden of a long payment
plan. This is known as the “fresh
start” provision of federal bankruptcy law.
However, the court will not force lien creditors, such as a creditor
holding a mortgage on your home or the financing on your vehicle, to let you
keep that home or vehicle. If you have
been a good account customer, they may allow you to resume your payments
directly to them, but they can instead ask the court to allow them to
foreclose or repossess against you.
Moreover, either type of bankruptcy remains on your credit record for
ten years -- and some lenders may look more favorably on a person who
completed a payment plan than someone who discharged all of their debts. Are There Alternatives
to Bankruptcy? There
are alternatives to filing bankruptcy, but they generally depend on you
having a strong and steady income to pay your debts if you are given more
time. One option is to use a debt
counseling service, which can consolidate your monthly payments and obtain
payment or interest reductions on your unsecured debts. Another alternative is to borrow against
the equity in your home (the value above the balance of the existing
mortgage). However, these options may
leave you in worse financial shape if you ultimately file a Chapter 13 or a
Chapter 7 case anyway.
Business and Bankruptcy What can I do to protect my business before
one of my customers goes bankrupt? There are several strategies you can use to minimize the impact on your business of customer bankruptcies, including the following: 1. Require pre-loan or pre-transaction disclosure of credit information. 2. Insist on personal guarantees of corporate accounts. 3. Include in your contract or invoice a provision for payment of interest, costs and attorney's fees in the event of collection. 4. Obtain a security interest in the products or equipment you are selling, if practical, and a negative covenant against other liens. A company my business sells to was slow in
paying me and now has filed Chapter 11 bankruptcy. Can the company in
bankruptcy sue me to recover their late payments as "preferences"
as they have threatened? Yes, federal law does allow a Chapter 11 debtor or a Chapter 7 trustee to sue in federal Bankruptcy Court to recover any late payments the debtor made to a creditor outside the ordinary course of business. But don't give up! There are time limits for how far back the payments occurred and several defenses that may be available to you, such as that the payments actually reflected normal industry practice or that you extended new credit to the debtor in response to its payments. A Chapter 7 trustee is suing me for the
value of the inventory a company returned to my business to satisfy its unpaid
open account a month before the company filed bankruptcy. What can I do? As with late payments, federal law does allow a Chapter 11 debtor or a Chapter 7 trustee to sue in federal Bankruptcy Court to recover any inventory, equipment or other property the debtor gave back to a creditor outside the ordinary course of business. Again, there are time limits for how far back the transfers occurred and several defenses that may be available to you. It is important that you contact your attorney as soon as possible. |
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Divorce and Bankruptcy My spouse and I were in the process of a
divorce when he filed bankruptcy. What happens to our divorce case now? The automatic stay (a kind of injunction) that stops pending lawsuits when a party files bankruptcy does not apply to the creation or modification of an order for alimony or child support. However, most divorce trial judges will put a divorce case on hold while the bankruptcy case is being resolved because the federal Bankruptcy Court has authority to divide the parties' property and order distribution to their creditors. It may be a matter of strategy whether you want to ask the Bankruptcy Court to address these issues or to abstain so that the divorce case may go forward. A man I was suing gave all his property to
his wife in their divorce and then filed bankruptcy. Can creditors challenge
a divorce property settlement agreement? Yes. You may have remedies under state law and/or federal law. The first test is whether the property was awarded to the spouse by the court after a trial or if the court merely "rubber stamped" an agreement between the husband and wife. If it is the latter situation, you may be able to attack the property settlement as a transfer of the debtor's property to defraud his creditors under state law or as a preference or fraudulent conveyance under federal bankruptcy law. Be aware that there are time limits to file your challenge to the property settlement! |
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