Bankruptcy Law

Bankruptcy Law provides a legal method for an individual or commercial enterprise (business) to either wipe out (discharge) the debts by liquidating assets and distributing them among creditors or resolve them by developing a court-approved reorganization plan, or other plan involving the repayment of creditors over time.

The primary purposes of bankruptcy laws are to relieve honest individual and commercial enterprise debtors from indebtedness and to provide them with a fresh start. Title 11 of the United States Code (the bankruptcy code) regulates the bankruptcy proceedings, including what chapter under which a debtor may file, what bills can be eliminated, how long payments may be extended, what possessions can be kept, and all other details concerning the bankruptcy. If the debtor initiates the bankruptcy it is called a voluntary bankruptcy. If the creditor initiates the bankruptcy it is called an involuntary bankruptcy.

Bankruptcy Proceedings

There are two basic types of bankruptcy proceedings: liquidation under Chapter 7 and debtor rehabilitation involving a court-approved plan of reorganization and payment of the debts over a period of time using future earnings under Chapters 9, 11, 12 and 13. The following gives general information on the five chapters of bankruptcy under which the debtor may possibly file:

Chapter 7 – informally called “straight bankruptcy,” is a liquidation bankruptcy proceeding. The debtor turns over all non-exempt property (assets) to the bankruptcy trustee who then converts it to cash for distribution among the creditors. At the end of the proceeding the debtor receives a discharge of indebtedness (discharge notice) for all dischargeable debts, releasing him or her from personal liability for those debts.

Chapter 9 – Adjustment of Debts for a Municipality – is a federal mechanism for the resolution of municipal debts passed by Congress about 60 years ago. This form is similar to reorganization under Chapter 11, but it’s only available to municipalities. Municipalities include cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts.

Chapter 11 – Reorganization – is normally the chapter under which commercial enterprises (businesses) file. This allows the business to continue its operations while repaying creditors concurrently through a court-approved plan of reorganization.

Chapter 12 – Adjustment of Debts of a Family Farmer with Regular Annual Income – provides debt relief to family farmers. Chapter 12 proceedings are very similar to those of Chapter 13 where the debtor proposes a plan to repay debts over a period of up to three years, unless the court approves a longer period, no more than five years.

Chapter 13 – Adjustment of Debts of an Individual with Regular Annual Income – provides debt relief for individuals (consumers). Chapter 13 differs from Chapter 7 in the respect that it enables the debtor to keep valuable assets, like a house, while making payments to creditors (through the trustee) based on the debtor’s anticipated income over the life of the plan, usually three to five years. At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code’s requirements for confirmation.

We welcome any questions or comments you may have. Feel free to contact us at any time at 770-LAWFIRM:

Small business bankruptcy happens. Sometimes small business firms don’t make it. They fail financially for various reasons and find themselves faced with deciding if bankruptcy is necessary. Bankruptcy is a process you go through in federal court that is designed to help your business eliminate or repay its debt under the protection of the bankruptcy court. Business bankruptcies are usually described as either liquidations or reorganizations depending on the type of bankruptcy you take.

There are three types of bankruptcy that your business may file for depending on its business form. Sole proprietorships are legal extensions of the owner. The owner is responsible for all assets and liabilities of the firm. A sole proprietorship can take bankruptcy by filing for Chapter 7, Chapter 11, or Chapter 13. Corporations and partnerships are legal entities separate from their owners. As such, they can file for bankruptcy protection under Chapter 7 or Chapter 11.

Chapter 7

Chapter 7 bankruptcy may be the best choice when the business has no future. It is usually referred to as liquidation. It is usually used when the debts of the business are so overwhelming that restructuring them is not feasible. Chapter 7 is also appropriate when the business does not have any substantial assets. If a business is really just an extension of a particular owner’s skills, it usually does not pay to reorganize it and Chapter 7 is appropriate. Chapter 7 bankruptcy usually means that the business is over.

In Chapter 7 bankruptcy, a trustee is appointed by the bankruptcy court to take possession of the assets of the business and distribute them among the creditors. After the assets are distributed and the trustee is paid, a sole proprietor receives a “discharge” at the end of the case. A discharge means that the owner of the business is released from any obligation for the debts. Partnerships and corporations do not receive a discharge.

Chapter 11

Chapter 11 is a better choice for businesses that may have a future. Chapter 11 is a plan where a company reorganizes and continues in business. It is reorganized under a court-appointed trustee. The owner of the company may actually be the trustee. The company files a plan of reorganization outlining how it will deal with its creditors. Creditors vote on the plan. If the court finds the plan is fair and equitable, they will approve the plan. Reorganization plans provide for payments to creditors over some period of time which may exceed twenty years. Chapter 11 bankruptcies are exceedingly complex and not all succeed. It usually takes over a year to confirm a plan.

Chapter 13

Chapter 13 bankruptcy is a reorganization bankruptcy typically reserved for consumers, though it can be used for sole proprietorships. You file a repayment plan with the bankruptcy court detailing how you are going to repay your debts. The amount you will have to repay depends on how much you earn, how much you owe, and how much property you own. If your personal assets are involved with your business assets, as they are if you own a sole proprietorship, you can avoid calamities such as losing your house if you file Chapter 13 versus Chapter 7.

Debt Negotiation

Borrowers sometimes find themselves in over their heads. Many people feel that filing for bankruptcy is the only way out of avoiding foreclosure. While bankruptcy is one option, it is not the only option available to you for relief. Before you decide to file look over all your options to determine which best fits your needs. Bankruptcy should be a last solution as it causes the most damage in the long run.

One way to avoid foreclosure or default is to use a workout program. Debt workout programs are agreements between a troubled borrower and a lender. Below you will find several types of workouts. If you have any questions regarding workout options please call us at 770-LAW-FIRM to schedule a no charge consultation.

Types of Workouts:

Some possible workouts include:

• Temporary reduction in your interest rate (APR)
• Temporary forbearance – reducing or skipping a few payments
• Adding missed payments to your loan balance (so you catch up on them later)
• Extending the term of your loan
• Set up a repayment schedule

When to Ask About Workouts:

You should contact your lender as soon as you see trouble on the horizon. By being proactive, you keep more options open.

How to Get a Workout:

To set up a workout program, call your lender. They need to approve the program and agree on all the details.

If all this intimidates you please call us at Barrister Law. We can help work with your lenders to arrange agreeable payment options that can relieve the stress you are under.

Call us at 770-LAW-FIRM for a no-charge consultation to discover the best option for your particular situation.