|
WHAT IS BANKRUPTCY?
Bankruptcy is a method of discharging or reorganizing debt. Reorganization bankruptcies (Chapters 11, 12 and 13 of the United States Bankruptcy Code) are
intended to provide individuals and businesses with protection from creditors while they restructure under court supervision by making reduced payments
to their creditors. The reorganization bankruptcies, in most cases, stop foreclosures and repossessions.
CHAPTER 7:
This is the common form of bankruptcy. In this type of bankruptcy, the debtor files a petition in federal court listing everything he or she owns and
all of his or her debts. The debtor claims the property which he or she is allowed to keep by law (exempt property). If there is any property which is
not exempt, it is turned over to the court to be sold to apply to the payment of debts. Due to the great amount of protection afforded by Texas Law
most of a consumer's property is exempt (see section on exemptions). If there is not enough property to pay the debts, the remainder of the debts are
forgiven except for non-dischargeable debts (see the section on debts that are not forgiven). The court cost for filing a Chapter 7 is $200.00. The
attorney's fee will vary depending on the amount of services required. Quoted fees do not include unforeseen litigation.
CHAPTER 13:
In this type of bankruptcy, the debtor files a petition in the federal court listing all of his or her debts and property. The debtor then enters into a plan
to make payments on his or her debts for three to five years. The plan does not have to provide for paying for all of the debts in full, but it must be the
debtor's best effort and must be approved by the court. After the plan is over, the remaining debts are forgiven. This type of bankruptcy permits the
debtor to keep some of the assets which would not be exempt under Chapter 7 and provides a broader discharge than Chapter 7. In other
words, some of the debts that would not be dischargeable in Chapter 7 are dischargeable under Chapter 13. To qualify for a Chapter 13 bankruptcy
the debtor must be an individual (corporations, partnerships and trusts are not permitted); he or she must have regular income such as wages, pensions,
government benefits; and the debts must not exceed $269,250 of unsecured debts or $807,750 of secured debts. The court cost for filing a Chapter 13
is $185.00. The attorney's fee will vary depending on the amount of services required. Generally, quoted fees only cover the period through
confirmation. Services provided after confirmation are not anticipated and there will be an additional charge. Examples of such services are
modification of plans, motions to dismiss or motions to obtain relief from stays.
CHAPTER 11:
This is a form of business reorganization bankruptcy. The business or individual files for reorganization or for time to liquidate debts over a period
of time, usually three to five years. The goal of the Chapter 11 is to get court approval of a plan that will provide for payment of debts while the
debtor continues to operate. Chapter 11 is the most complex and costly form of bankruptcy, and it requires that the debtor keep detailed records
and to deal with the demands of the creditors. The debtor usually performs the duties of the trustee. Generally, if poor management led to the debtor's
problems, or if the debtor's relationship with his or her creditors has deteriorated, it will be very difficult to get approval of a Chapter 11 plan.
Recent court decisions have caused the courts to move these cases faster than they have in the past. The court cost to file a Chapter 11 is $830.00.
The attorney's fee is on a time and expense basis. Generally, a large retainer is required up front to assure that fees will be paid. Additionally, the U.S.
Trustee charges a quarterly fee based on the amount of disbursements until the case is closed.
CHAPTER 12:
This a form of bankruptcy which was enacted specifically because of the agriculture crisis. It is available to family farms and ranches that have at least
80% of secured debt in the agricultural operation, and from which the family derives at least 50% of its gross income. Farms and ranches with up to
$1.5 million in secured debts are eligible for consideration. Family held corporations, partnerships or joint operations are eligible, provided the
family owns the majority of the interest and any stock is not publicly traded. It is simpler than Chapter 11, and the creditors cannot veto a reorganization
plan submitted by the farmer or rancher. Under Chapter 12, the farmer or rancher is given some of the powers of the court appointed trustee, and
remains in charge of the operation. Land and equipment may be sold by the operator to trim the debt load and to pay off creditors. Agricultural
operators in Chapter 12 may make payments to creditors equal to the market value of land and equipment in installments like rental payments. If
the value of land and equipment has declined, the difference between the balance of the loan or mortgage and the present market value is deemed
unsecured debt and will be discharged (forgiven) at the end of the 3 to 5 year period. The operator's assets are put into trust that is used to pay living
and operating expense and to pay creditors. The court cost for filing a Chapter 12 is $230.00. The attorney's fee will vary depending on the services to be performed.
CAN A DEBTOR BE FORCED INTO BANKRUPTCY?
Yes, except for farmers. Also, a farmer who has filed a case to reorganize cannot be converted to Chapter 7.
For purposes of the Bankruptcy Code, a farmer is defined as a person who derived 80% of his or her gross income from farming in the taxable year
immediately before the bankruptcy was filed.
WHEN IS VOLUNTARY BANKRUPTCY A GOOD IDEA?
A debtor should always attempt to work out an arrangement with creditors to repay or restructure debts if possible, especially where the financial
problem is temporary. If a workout cannot be negotiated, bankruptcy may be the only alternative, especially if foreclosure or repossession is imminent.
Bankruptcy may be a good idea if:
1. Liens are being put on the debtor's property;
2. A creditor is attempting to foreclose on or repossess a debtor's collateral (such as household goods or necessary tools or farm machinery)
and won't let the debtor work out lower payments so he or she can keep the collateral; or,
3. A creditor has foreclosed, repossessed, or obtained a judgment, and is proceeding with attempts to obtain possession of the debtor's property. In
these cases, the bankruptcy must be commenced immediately after the foreclosure is commenced or judgment is obtained if the debtor is to be protected against loss of property.
A bankruptcy petition can stop collection efforts, harassment, foreclosures and judicial sales.
WHEN IS BANKRUPTCY NOT A GOOD IDEA?
Bankruptcy is not a good idea if:
1. The debtor has not made an attempt at informal negotiation with major creditors;
2. The debtor is not working and does not have anything his or her creditors can take;
3. Debts are less than $5,000.00; or,
4. If the debtor is expecting an inheritance or property settlement in a divorce proceeding within 6 months after filing.
5. If the debtor loads up the credit cards by purchasing luxury goods.
Reorganization bankruptcy may not be a good idea if the debtor lacks a steady source of income for operating expenses, since no chapter of the
Bankruptcy Code requires lenders to loan money to persons who are in bankruptcy. Most lenders are reluctant to loan money to persons in
reorganization. Exceptions are utilities who must provide services, but they may require higher deposits; and, the Farmers Home Administration has
regulations that state that bankruptcy does not automatically disqualify a loan applicant from consideration.
WILL BANKRUPTCY AFFECT MY JOB?
No. Under the Bankruptcy Code, employers (with certain exceptions) cannot discriminate against a person for electing to enforce his or her rights
under the law. Also, government units may not discriminate against a person in licensing for exercising his or her rights under the Bankruptcy Code.
WHAT EXEMPT PROPERTY CAN BE PROTECTED?
The law states that some property is so important that it cannot be taken by a creditor unless the creditor has a valid security interest in the property.
This property is called "exempt property". Under the law, a debtor (individuals only - -corporations, partnerships, etc., do not qualify) may elect
to take either federal or state exemptions. Items protected from unsecured creditors under Texas law include:
1. Up to 200 acres of land for a family or 100 acres for a single person with improvements including residence outside a city or town, or ten acre
with improvements including a residence inside a city or town.
2. Eligible personal property with a combined fair market value of up to $60,000.00 for a family or $30,000.00 for an individual. Eligible personal
property includes:
-home furnishings, including family heirlooms;
-provisions for consumption (food);
-if reasonably necessary, farming or ranching vehicles and implements, tools, equipment, books and apparatus, including boats and motor vehicles,
used in a trade or profession;
-wearing apparel;
-jewelry not to exceed 25% of aggregate exemption;
-two firearms;
-athletic and sporting equipment;
-a 2, 3 or 4 wheeled vehicle for each member of the family, including cars, trucks, bicycles, horses, etc.;
-the following and forage on hand necessary for their consumption: two horses, mules, donkeys and saddle, blanket, and bridle for each, 12 head of
cattle, and 120 fowl;
-the cash surrender value of any life insurance policy to the extent that a member of the family of the insured or a dependent of the insured;
-commission not for personal services up to 25% of aggregate;
-current wages for personal service; and,
-professionally prescribed health aids of debtor or a dependent of debtor.
Social Security benefits, unemployment compensation, public assistance and certain retirement benefits.
WHAT ARE THE DEBTS THAT ARE NOT DISCHARGED?
Generally, most forms of bankruptcy will not get rid of debts for child support, alimony or taxes.
Sometimes, what the borrower does before filing bankruptcy may prevent discharge of certain debts. For example: if the debtor fraudulently
transfers property, conceals property; fails to explain the loss of property; intentionally provides the court with false information; is guilty of perjury; or
fails to cooperate with the court. Also, these acts are federal crimes.
Certain debts on application of the creditor and after hearing can be determined to be an exception to discharge. For example: Taxes, fines
owing to a government unit, alimony, child support, debts created by fraud or theft, malicious injury to person or property, injury to person or property
while driving intoxicated, certain student loans, debts not listed, etc. However, under Chapter 13 most of these debts can be discharged or provided for under the plan.
All sales or transfers (even for security) within three months before the date the petition is filed will be looked at closely. The bankruptcy court will look
back one year if the transaction is between family members or partners.
CAN BANKRUPTCY PROTECT A DEBTOR FROM FORECLOSURE OR REPOSSESSION?
Yes. A bankruptcy will delay foreclosure for at least several weeks or months.
If a consumer elects the federal exemptions, the bankruptcy court can wipe out a lien of a creditor on household goods, household furnishings, wearing
apparel, appliances, books, animals, crops, musical instruments, tools, etc., if the creditor did not give the debtor the money to purchase the items and
the creditor is not holding the items or if the lien is a judicial lien.
In certain cases the debtor can retain property by continuing the payments to the creditor or by paying the current value of the collateral in cash and
discharging the remainder of the debt.
WILL BANKRUPTCY HURT THE DEBTOR'S CREDIT RATING?
That depends a great deal on how the debtor's credit rating was before he or she filed bankruptcy. The fact that the debtor filed bankruptcy will
remain on the debtor's credit record for ten years. Other adverse information such as foreclosures, repossessions, judgments, slow payments,
etc., will be reported for seven years. Some creditors will keep the debtor's account open if the debtor continues payments and has been current with the creditor in the past.
WHO CAN FILE BANKRUPTCY?
Any person who resides in, does business in or has property in this country can file bankruptcy. It is not necessary that the debtor's debts be greater
than the debtor's assets in order to file bankruptcy, although as a practical matter it is seldom wise to do so unless the debts are greater than the
debtor's assets. The exception, of course, is a reorganization case.
HOW OFTEN CAN A DEBTOR FILE BANKRUPTCY?
A discharge cannot be granted in a Chapter 7, 11, or 12 if the debtor has been granted a discharge in a Chapter 7, 11, or 12 bankruptcy within the
previous six years or in a Chapter 13 case filed in the last six years, unless 70% or more of his or her debts were paid off in the Chapter 13 case. A
debtor can file a case at any time and be granted a discharge under Chapter 13 as often as is necessary. However, an individual cannot file a new
bankruptcy if the individual had a bankruptcy case dismissed in the past six months for failure to obey a court order or the individual dismissed the case while a motion to lift stay was pending.
UNDER WHAT CONDITIONS SHOULD BOTH THE HUSBAND AND WIFE FILE A BANKRUPTCY?
Both the husband and wife should file when some of the debts are owed jointly by both the husband and the wife.
CAN BOTH A HUSBAND AND WIFE FILE A JOINT BANKRUPTCY PETITION?
Yes. Under the bankruptcy laws a husband and wife may file a joint bankruptcy petition, using the same forms. Only one court cost is charged
to file and generally the attorney's fee will be the same to file a joint petition.
HOW MUCH DOES IT COST TO FILE BANKRUPTCY?
There is no set amount for attorney's fees. The amount of attorney's fees will depend on the type and complexity of the case. Fees are always
subject to the approval of the bankruptcy court. This is also true for the fees of certified public accountants, private appraisers and other professionals the
debtor may have to hire for a reorganization bankruptcy. Because of the nature of bankruptcy most attorneys require their fees up front.
CAN A DEBTOR TRANSFER PROPERTY TO A RELATIVE TO KEEP CREDITORS FROM GETTING IT?
No. Transfers to friends and relatives are suspect and can cause a denial of the debtor's discharge if made to defeat creditor's interest, and such
transfers in bankruptcy cases are subject to possible criminal action.
Likewise, a debtor should not buy property and charge it or borrow money if they are considering bankruptcy. This type of debt will be considered a
non-dischargeable debt in bankruptcy.
IS IT OKAY TO WAIT AND SEE IF YOU NEED BANKRUPTCY LATER?
BE CAREFUL THERE MAY BE A CHANAGE IN THE BANKRUPTCY LAWS
Sometimes. Many unemployed people wait until they go back to work. It is usually best to wait until foreclosure or repossession is threatened before
filing bankruptcy. Most debts incurred after the bankruptcy is filed cannot be added to the bankruptcy. It is a good idea to obtain insurance after
bankruptcy to protect you from future suits. Even though you can discharge a foreclosure deficiency in bankruptcy, do not wait for foreclosure to occur
before filing. Foreclosures in some cases have tax consequences and taxes are not dischargeable in bankruptcy. However, if bankruptcy is filed before
the foreclosure it can prevent negative tax consequences.
To contact us - Click Here
|
