THE BANKRUPTCY CLINIC LAW FIRM
Chapter 7 is the liquidation chapter of the Bankruptcy Code. Chapter 7 cases may be filed by an individual, a corporation (defined as including a qualifying business trust) or a partnership. Under chapter 7, a trustee is appointed to collect and sell all property that is not fully encumbered by a lien and is not exempt and to use any proceeds to pay creditors. When the debtor is an individual, the debtor is allowed to claim certain property as exempt. The individual debtor usually receives a discharge, which means that he or she is relieved of the obligation to pay certain types of debts. Corporations and partnerships are not eligible to receive discharges. For more detailed information on chapter 7, click here: Chapter 7 Liquidation Under the Bankruptcy Code
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Chapter 11 is the reorganization chapter available to businesses and individuals who have assets and/or income for use in restructuring and repaying their debts. Creditors vote on whether to accept or reject a plan of reorganization, which must be approved by the Bankruptcy Court. While the debtor typically remains in control of the assets, the Court, in some circumstances, can order the appointment of a trustee to run the business. In addition to the filing fee paid to the Clerk, the debtor must pay a quarterly fee to the U.S. Trustee based on the debtor’s revenues. For more information on chapter 11, click here: Chapter 11 Reorganization Under the Bankruptcy Code
Chapter 12 offers bankruptcy relief to those who qualify as a family farmer or fisherman. There are debt limitations for chapter 12, and a certain portion of the debtor's income must come from the operation of a farming or fishing business. Family farmers or fishermen must propose a plan to repay their creditors over a period of time from future income, and the plan must be approved by the Bankruptcy Court. Plan payments are made through a chapter 12 trustee, who also monitors the debtor's business operations while the case is pending. For more information on chapter 12, click here: Chapter 12 Family Farmer or Family Fisherman Bankruptcy
Chapter 13 is the debt repayment chapter for individuals (including those who operate businesses as sole proprietorships) who have regular income, whose secured debts do not exceed $1,010,650 and whose unsecured debts do not exceed $307,675. (Note that these debt limitations change from time to time.) Chapter 13 is not available to corporations or partnerships. Chapter 13 generally permits individuals to keep their property by repaying creditors out of their future disposable income. The chapter 13 debtor proposes a repayment plan which must be approved by the Bankruptcy Court. The debtor pays the amounts set forth in the plan to the chapter 13 trustee, who distributes the funds to creditors in return for a small fee. The chapter 13 debtor receives a discharge of most debts after the debtor completes the payments required under the plan. For more information on chapter 13, click here: Chapter 13 Individual Debt Adjustment
Filing a bankruptcy petition "automatically stays" (stops) most collection actions against the debtor or the debtor's property. See section 362(a) of the Bankruptcy Code. The stay arises by operation of law and requires no judicial action. But there are several exceptions to this general stay listed in section 362(b) of the Bankruptcy Code. The most common exceptions are criminal proceedings, collection of certain alimony and child support obligations and governmental actions to protect the public. In addition, the automatic stay is temporary and will end as to the debtor when discharge is granted (at which time the discharge protects the debtor) or denied, when the case is dismissed or closed, or if the Bankruptcy Court grants a creditor or other party relief from the automatic stay for the reasons set forth in section 362(d) of the Bankruptcy Code. See also other limitations on the automatic stay set forth below. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments, without the approval of the bankruptcy court.
A bankruptcy discharge is a court order that relieves a debtor from personal liability for some specific types of debts. The discharge order permanently prohibits creditors from taking action to collect discharged debts from the debtor and, with very limited exceptions, against income and property that the debtor acquires after the bankruptcy filing. When a debt has been discharged, the creditor can no longer seek repayment. The discharge is the primary benefit most debtors obtain from bankruptcy. It is, however, important to understand that not all debts are dischargeable and creditors may still seek repayment for debts that are not discharged. Moreover, a debtor’s discharge may be denied or revoked.
Section 341 of the Bankruptcy Code requires that the United States Trustee convene and preside over a meeting of a debtor’s creditors. This "meeting of creditors," which is also referred to as a section 341 meeting, is held in every bankruptcy case. The debtor must attend the meeting; in many cases it is the only meeting or hearing that the debtor must attend. The first meeting of creditors usually occurs between twenty and forty days after the date that the bankruptcy petition is filed with the Bankruptcy Court. When the bankruptcy petition is filed, the Clerk’s Office sends out a notice that sets the date for the meeting. In chapter 7, chapter 12, and chapter 13 cases, the meeting is conducted by the trustee who the United States Trustee has assigned to the case. No bankruptcy judge is present at the meeting. In chapter 11 cases, where (usually) the debtor is in possession of the business assets and no trustee is assigned, a representative of the United States Trustee's office conducts the meeting. Creditors are not required to attend these meetings and, in general, do not waive their rights by failing to appear.
The meeting of creditors permits the trustee or representative of the United States Trustee's Office to review the debtor's petition and schedules with the debtor face-to-face. The debtor is required to answer questions under penalty of perjury concerning the debtor's conduct, assets, liabilities, financial condition, and any matter that may affect administration of the bankruptcy estate or the debtor's right to a discharge. This information enables the trustee or representative of the United States Trustee's Office to understand the debtor's circumstances and facilitates the efficient administration of the case.
Section 341 meetings are typically short in duration. The trustee or representative of the United States Trustee's Office may continue the meeting if he or she is not satisfied with the information that the debtor provides. It is imperative that the debtor attends the meeting of creditors. If the debtor fails to appear, the trustee or representative of the United States Trustee's Office may request that the Bankruptcy Court dismiss the bankruptcy case or that the Court order the debtor to cooperate or be held in contempt of court for willful failure to cooperate.
In addition, debtors are required to file with the trustee at least seven (7) days prior to the Section 341 meeting (i) all payment advices or other evidence of payments received by the debtor within 60 days before filing, made to the debtor from any and all employers; and (ii) their most recent tax returns.
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