Bankruptcies

The typical person’s knowledge of bankruptcy usually does not stem further beyond the board game Monopoly or the TV show Wheel of Fortune. But during financial recessions, bankruptcies also begin to populate the news as more and more people are forced to seek financial relief.

BankruptcySo, the question remains, what is a bankruptcy?

A bankruptcy is a legal proceeding during which a debtor requests the bankruptcy court to discharge their debts held by a creditor. Seems simple right? Unfortunately, it is not this simple.

There are different types of bankruptcies with the most typical being Chapter 7, Chapter 11, and Chapter 13. The follow descriptions attempt to elaborate on the main parts of all these different types of bankruptcies and how they differ from each other. With that said, this is not an exhaustive description of the requirements of each bankruptcy and it is recommended that you seek the help of an experienced bankruptcy attorney in determining which bankruptcy is right for you. Thomas Pedersen Attorney at Law is offering free initial consultations and competitive rates to help you achieve a discharge in bankruptcy.

Chapter 7 Bankruptcy:

  1. Who is it available to? A Chapter 7 Bankruptcy is available for both individuals and businesses but are typically utilized by individuals.
  2. What kind of discharge is achieved? “A [Ch.] 7 [B]ankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code.”[1]
  3. What is required in a petition? A petition is filed by the debtor with US Bankruptcy Court which outlines. “In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b).”[2]
  4. What eligibility requirements are there? In order to determine whether a debtor qualifies for a Ch. 7 Bankruptcy, the court employs the “means test.” “If the debtor’s “current monthly income” (1) is more than the state median, the Bankruptcy Code requires application of a “means test” to determine whether the chapter 7 filing is presumptively abusive. Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses, is more than (i) $12,850, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $7,700. (2) The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Unless the debtor overcomes the presumption of abuse, the case will generally be converted to chapter 13 (with the debtor’s consent) or will be dismissed. 11 U.S.C. § 707(b)(1).”[3]
  5. How often can one be filed? There is an 8-year waiting period between filing for consecutive Ch. 7 Bankruptcies.

Chapter 11 Bankruptcy:

  1. Who is it available to? A Chapter 11 Bankruptcy is available to both individuals and businesses but are typically only utilized by businesses.
  2. What kind of discharge is achieved? A discharged achieved by Ch. 11 Bankruptcy is focuses on the reorganization of debt, reduction of debt, and extending the repayment period of the debt.
  3. What is required for a petition? A Chapter 11 Bankruptcy is very different from a Chapter 7 in that there are two kinds of petitions which could be filed, an involuntary petition and a voluntary petition. An involuntary petition is filed by creditors and are subject to certain requirements. A voluntary petition is filed by the debtor and “the debtor also must file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. Fed. R. Bankr. P. 1007(b).”[4]
  4. What eligibility requirements are there? Very few as Ch.11 Bankruptcy focuses on the restructuring of debt.
  5. How often can one be filed? There is no waiting period between filing for a Ch. 11 Bankruptcy and filing for another one.

Chapter 13 Bankruptcy:

  1. Who is it available to? A Chapter 13 Bankruptcy is available only to individuals but if that individual owns a business as a sole-proprietorship, the business can qualify as the business is essentially the individual.
  2. What kind of discharge is achieved? Under a Chapter 13 Bankruptcy, debtors propose a repayment plan to make installments to creditors over three to five years.
  3. What is required for a petition? A petition is filed by the debtor with US Bankruptcy Court. “In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007(b).”[5]
  4. What eligibility requirements are there? Very few as Ch. 13 Bankruptcy focuses on the repayment plan submitted to the court.
  5. How often can one be filed? There is a 2-year waiting period between filing for consecutive Ch. 13 Bankruptcies.

[1] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

[2] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

[3] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics

[4] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics

[5] https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics

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