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The Major Players in Bankruptcy Proceedings

There are several roles in bankruptcy proceedings that may change slightly depending upon the type of bankruptcy relief sought – whether it is Chapter 7, 11, 12 or 13 – but the major players are almost always the same. We’ve listed a few of them below.

Debtor: A debtor can be an individual, a business/corporation, or even a municipality (such as a city or county). The debtor borrowed money or incurred an obligation which is owed (or alleged to be owed) to creditors.

Creditor: An entity to which a debt or obligation is owed (or alleged to be owed). There are two types of creditors: (1) a secured creditor, to which collateral or property was pledged (such as a mortgage on a house or a car loan); and (2) an unsecured creditor, to which a loan or obligation was given and no collateral was offered (such as a credit card or medical bill).

Trustee: An individual appointed by, in North Carolina, the Bankruptcy Administrator’s Office to: (1) gather property not exempt from bankruptcy, (2) manage the funds from the sale of that property, (3) pay certain administrative expenses, and (4) distribute the remaining balance to the creditors. The Trustee receives non-exempt property from either the liquidation of assets, or monthly payments from the debtor’s post-petition earnings, depending upon the type of bankruptcy filed.

Bankruptcy Administrator: An individual appointed to oversee the administration of all bankruptcy cases that are filed. North Carolina uses Bankruptcy Administrators, while most other states use United States Trustees, although their roles and responsibilities are nearly identical. The Bankruptcy Administrator ensures that the bankruptcy system is running smoothly and efficiently.

Equity Holders: In corporate bankruptcy cases, equity holders are often the stockholders, otherwise known as equity security holders.

Bankruptcy Judge: the individual who presides over the case and resolves disputes.

While these are not the only players you should expect to be involved in bankruptcy proceedings, they are involved in the majority of cases.

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Chapter 13 Bankruptcy Can Halt Foreclosure

One of the leading causes of filing for bankruptcy is the inability to repay a mortgage, or falling behind on a mortgage and not being able to catch it back up. Filing a Chapter 13 bankruptcy imposes the Automatic Stay (the “Stay”) against all creditors, including a mortgage company who is instituting a foreclosure proceeding. In the context of a foreclosure, the Stay is effective until the bankruptcy court permits the lender to continue the foreclosure or until the bankruptcy case is either closed (completed) or dismissed.

If your property is in foreclosure, it is in your best interest to seek the advice of a bankruptcy attorney immediately. Even if a foreclosure sale has been completed on the property you want to keep, filing a Chapter 13 bankruptcy within 10 days of the completion of the sale (called the 10-day redemption period, or Upset Bid Period) may, under certain circumstances, stop, postpone, or even reverse the sale. Chapter 13 bankruptcy is a vehicle that can allow you to pay the past due amount to your mortgage (the arrears)  over a period of up to five years. Once you’re caught up, there is no further reason for foreclosure, assuming no other defaults exist. However, if you have decided to walk away from the mortgaged property – perhaps the mortgage is more than the property is worth – a bankruptcy can prevent the lender from continuing to pursue collection on the remaining balance (called a deficiency). Chapter 13 bankruptcy can also return the property to the lender via an orderly release.

If you are in mortgage distress, it is strongly recommended that you see the advice of a knowledgeable bankruptcy attorney now.

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What you need to know about Chapter 7 Bankruptcy

If you’re considering filing Chapter 7 bankruptcy, here are a few things you need to know. Filing for relief under the Bankruptcy Code, including filing a Chapter 7 bankruptcy, can pose a number of advantages to individuals and businesses in financial difficulties. Two of the largest advantages are the discharge and the imposition of the “automatic stay” that prevents creditors from contacting or collecting against you. Although you may benefit from the “automatic stay” or one of the many other advantages you receive after filing for relief under the Bankruptcy Code, there are some disadvantages that may apply to your situation and of which your attorney will want to discuss with you first.

While no amount of information can replace a consultation with a bankruptcy attorney who can review your individual situation and make recommendations to you on the best way to navigate your financial difficulties, below are some important things to know about Chapter 7 bankruptcy before meeting with your attorney:

  1. Chapter 7 bankruptcy is also known as “liquidation” bankruptcy. That means the Court can discharge, or cancel your debts but the Trustee can also sell some of your property to repay creditors. This is also known as “straight” bankruptcy.
  2. Not all of your property can be sold by a Trustee in a Chapter 7 liquidation. Some property is “exempt”, meaning not accessible by the Trustee. Exempt assets are governed by state law, and your individual facts and circumstances may vary, but for most people they are able to exempt some (if not all) equity in their home, their cars, their bank accounts, their household furnishings, and their retirement accounts.
  3. Anyone who has not received a bankruptcy discharge in the past six to eight years (the time is dependent on which type of bankruptcy was filed) and is filing in good faith can file for Chapter 7 bankruptcy as well as anyone who does not qualify for Chapter 13.
  4. You will be asked to disclose all of the property you own; current income and monthly expenses; certain financial transactions that happened in the past few years; and all debts. You will also be required to claim your “exempt” property.
  5. Filing a Chapter 7 may impose certain restrictions on your assets, meaning you are not authorized to sell, give away, or otherwise dispose of any property that you own prior to filing Chapter 7 without Court permission, or until the Trustee can review your file and determine that your assets are exempt.
  6. The ultimate goal of a Chapter 7 bankruptcy is to obtain a discharge, which removes your obligation to have to repay debts. Certain debts are not dischargeable, and will survive a bankruptcy filing, including child support or alimony obligations, most tax debts that you’ve incurred, student loans, equitable distribution debts, or any loans that a creditor can show was made fraudulently.
  7. Loans to purchase property by using collateral – known as secured loans – such as a car or house – are treated differently. With a home, if you are current on your home payments when you file and remain current on your payments (in North Carolina), you can continue to keep the home. With a car, if you are current on your payments when you file, the creditor may ask for you to reaffirm the debt (to make it so the bankruptcy does not apply to the car loan). If you aren’t current, the creditor may repossess the property. Creditors can ask to have the automatic stay lifted in order to repossess or foreclose if you failed to stay current with payments.

Be sure to speak to your attorney in depth before filing Chapter 7 since you may qualify to file Chapter 13 instead. Chapter 13 bankruptcy has a separate list of advantages, some of which are the same and some of which are different than a Chapter 7 bankruptcy filing. Your particular facts and circumstances will dictate whether a Chapter 7 or a Chapter 13 would be more advantageous to you. Only your attorney can advise you on the best direction to take.

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What Do Each Of The Bankruptcy Chapter Numbers Mean?

bankruptcy numbers meaningBankruptcy is governed only by federal law. The federal laws of the United States are “codified” within books of various groups, almost like volumes, with each volume receiving a numerical title. For example, Veterans Benefits are addressed in Title 38 of the U.S. Code whereas Title 17 addresses Copyrights. Bankruptcy is found in Title 11 of the U.S. Code. Each title is further divided into Chapters. Under Title 11, the different Chapters refers to the different types of bankruptcy. Here are the types of bankruptcy addressed by each of the chapters within Title 11.

Chapters 1, 3 and 5 of the Bankruptcy Code deals with generic issues within all of Bankruptcy law, like definitions, how Trustee’s are selected, as well as who files claims in the cases and when, to name a few. Chapters 1, 3, and 5 are not Bankruptcy Chapters that someone can elect to file a petition under.

Chapter 7 Bankruptcy deals with basic liquidation of assets for both individuals and businesses. It is the simplest and/or quickest form of bankruptcy. It involves the liquidation of non-exempt assets by a Chapter 7 Trustee, with the goal of obtaining a discharge which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid from the liquidation of assets. However, there are certain exceptions to these general rules.

Chapter 9 Bankruptcy deals with the resolution of the debts of municipalities. For example, Detroit, MI filed Chapter 9 bankruptcy on July 18, 2013.

Chapter 11 Bankruptcy deals with the financial reorganization of businesses (corporations). It is sometimes used by individuals with substantial debts. Chapter 11 allows a company to continue doing business while adhering to a debt repayment plan (or “Plan of Reorganization”) agreed upon by the bankruptcy court. Most often this debt repayment plan involves a repayment of some, but not all, of the indebtedness owed by the company over a period of a few years, based upon the company’s ability to pay. Each Chapter 11 Plan of Reorganization is unique and molded to the needs of the debtor in that case.

Chapter 12 Bankruptcy deals with the rehabilitation of debts for family farmers and fishermen. In such cases, filing a petition stops collection actions by creditors. A trustee is appointed to evaluate and oversee the case, collect payments from the debtor, and disburse payments to creditors.

Chapter 13 Bankruptcy deals with the rehabilitation of debts for individuals with a source of regular income. Chapter 13 allows for the development of a repayment plan to repay all or part of the debts owed over a three to five year time period. This repayment plan is overseen by a Chapter 13 Trustee. The ultimate goal of a Chapter 13 is to receive a discharge, which acts as a legally binding document absolving the individual from having to pay back any debts that were not repaid (in whole or in part) in the plan. Chapter 13 has certain advantages over a Chapter 7, in that it can discharge certain debts that are excepted from discharge in a Chapter 7.

Chapter 15 Bankruptcy provides a mechanism for dealing with “cross-border” insolvency or debtors of foreign countries to resolve debts owed to creditors in the U. S.

Chapters 8, 10, and 14 are not published within the U.S. Code, and were reserved for Congress to toy with in the future. For more information on bankruptcy law, visit one of the links provided or contact our team today!

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